-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K0x1YHoaO/JvsSJR4ZzbmPtEzbYoU1nIqYSkwNKzE5HTqoH5IrqUOM36tgDlc/aq HRBKZxSCPKPpHxfA5MXRtA== 0000014995-96-000016.txt : 19961220 0000014995-96-000016.hdr.sgml : 19961220 ACCESSION NUMBER: 0000014995-96-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961219 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXON TICONDEROGA CO CENTRAL INDEX KEY: 0000014995 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 230973760 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02655 FILM NUMBER: 96683421 BUSINESS ADDRESS: STREET 1: 195 INTERNATIONAL PKWY CITY: HEATHROW STATE: FL ZIP: 32746-5036 BUSINESS PHONE: 4078759000 MAIL ADDRESS: STREET 1: PO BOX 958413 CITY: HEATHROW STATE: FL ZIP: 32795-8413 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR CORP/DE/ DATE OF NAME CHANGE: 19831002 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR GROUP INC DATE OF NAME CHANGE: 19730619 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR CAMP RESORTS INC DATE OF NAME CHANGE: 19700608 10-K 1 1995 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 September 30, For the fiscal year ended 1996 Commission file number 0-2655 --------- ------ DIXON TICONDEROGA COMPANY -------------------------------------------------------------------- (Exact name of Company as specified in its charter) Form 10-K X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange - --- Act of 1934 (Fee Required) For the fiscal year ended September 30, 1996. Transition Report Pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934 (No Fee Required) For the transaction period from __________ to __________. Delaware 23-0973760 ------------------------------------- ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 195 International Parkway, Heathrow, FL 32746 --------------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (407) 829-9000 Title of each class Name of each exchange on which registered Common Stock, $1.00 par value American Stock Exchange Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Based on the closing sales price on December 3, 1996, the aggregate market value of the voting stock held by non-affiliates of the Company was $15,380,904. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of December 3, 1996: 3,293,778 shares of common stock, $1.00 Par Value. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. [ ] Documents Incorporated by Reference: Proxy statement to security holders incorporated into Part III for the fiscal year ended September 30, 1996. 2 PART I ------ ITEM 1. BUSINESS - ---------------- NEW DEVELOPMENTS AND BUSINESS STRATEGIES Dixon Ticonderoga Company (hereinafter the "Company") accomplished many strategic objectives during 1996. The Company reorganized and strengthened its management ranks into its two core business groups, as revenues grew to $106.7 million from $95.6 million in 1995. In addition, these businesses earned approximately $10 million in operating income for the second consecutive year. The Company also continued its efforts to improve its customer service capabilities by opening a dedicated central distribution center in Shelbyville, Tennessee, and through further technology enhancements. Corporate activities included the recapitalization of the Company's debt, including nearly $70 million of new financing. The new arrangements provide significantly more working capital to support the aforementioned growth of the Company's Consumer and Industrial Groups. Moreover, in 1996 the Company completed and relocated its corporate headquarters to its new facility in Heathrow, Florida. Despite the success experienced in 1996, the results from operations were adversely affected by certain unusual items. The Company provided approximately $2 million ($1.44 million after tax) towards the final settlement of its long-standing Dixon Venture lawsuit, based upon the decision rendered by the Court in April 1996. In addition, an extraordinary charge of $282,000 was incurred in connection with the early retirement of certain long-term debt as part of the recapitalization described above. Further information regarding these matters is included elsewhere in the Annual Report on Form 10-K. 3 INDUSTRY SEGMENTS In 1996, the Company redefined its principal business segments to reflect its current management structure and strategic objectives. The Company has two principal continuing business segments: its Consumer Group and Industrial Group. These segments, and the primary operations of each, are as follows: BUSINESS SEGMENTS OPERATIONS Consumer Group Manufacture and sale of writing and drawing pencils, pens, artist materials, felt tip markers, industrial markers, lumber crayons, typewriter correction materials and allied products. Industrial Group Manufacture and sale to industry of processed natural and synthetic bulk graphite, graphite oil, solvent and water-based lubricants, as well as colloidal graphitic suspensions (Graphite and Lubricants division); clay and graphite stopper heads, firebrick, non-graphitic refractory kiln furniture and furnace linings (Refractories division). Financial information regarding net revenues, operating profits and identifiable assets related to the Company's industry segments for the years ended September 30, 1996, 1995, and 1994, is contained in Note 11 to Consolidated Financial Statements. The Company's international operations are subject to certain risks inherent in carrying on business abroad, including the risk of currency fluctuations, currency remittance restrictions and unfavorable political conditions. It is the Company's opinion that there are presently no material political risks involved in doing business in the foreign countries (i.e. Mexico, Canada and Europe) in which its operations are being conducted. CONSUMER GROUP The Company manufactures its leading brand TICONDEROGA and a full line of pencils in Versailles, Missouri. The Company also manufactures and markets 4 advertising specialty pencils, pens and markers through its promotional products division. The Company is also the producer of WEAREVER writing products at its facility in Deer Lake, Pennsylvania. In addition to the WEAREVER and Dixon lines of pens, the Company also manufactures and markets its Prang and Ticonderoga lines of markers, mechanical pencils, and allied products at this facility. The Company also manufactures in Sandusky, Ohio (mainly for wholesale school suppliers and retailers) PRANG, COLORART, and other well known brands of wax crayons, chalks, dry and liquid tempera, water colors and art materials. This division also manufactures special markers for industrial use and paper-wrapped pencils, all of which are marketed and sold, together with the products manufactured by the Versailles and Deer Lake operations, by the U.S. Consumer Products group. Under an agreement with Warner Bros. Consumer Products, the Company also manufactures and markets in the U.S. and Canada a complete product line of pencils, pens, crayons, chalks, markers, paints, art kits and related items featuring the famous Looney Tunes characters. (See Note 12 to Consolidated Financial Statements.) Dixon Ticonderoga Inc., a wholly-owned subsidiary with a distribution center in Newmarket, Ontario, and a manufacturing plant in Acton Vale, Quebec, Canada, is engaged in the sale in Canada of black and color writing and drawing pencils, pens, lumber crayons, correction materials, erasers, rubber bands and allied products. It also distributes certain of the school product lines. The Acton Vale plant also produces eraser products and correction materials for distribution by the U.S. Consumer Products group. 5 Dixon Ticonderoga de Mexico, Inc., S.A. de C.V., a majority-owned subsidiary (50.1%) of Dixon Ticonderoga Inc., is engaged in the manufacture and sale in Mexico of black and color writing and drawing pencils, typewriter correction materials, lumber crayons and allied products. This subsidiary also manufactures and sells in Mexico certain products of the type manufactured at the Sandusky facility, as well as marker products manufactured at the Deer Lake facility. Dixon Europe, Limited, a wholly-owned subsidiary of the Company is engaged in the distribution of many Dixon Consumer Products in the United Kingdom and other European countries. INDUSTRIAL GROUP Through its Graphite and Lubricants division, Dixon manufactures and sells processed natural and synthetic graphite, graphite oil, solvent and water-based lubricants as well as colloidal graphitic suspensions. The American Graphite location in Manchester Township, New Jersey, and the Southwestern Graphite location in Burnet, Texas, process and sell graphite to industrial customers, and are engaged in the processing and blending of various grades of foreign and domestic graphites for use in the manufacture and sale of related products. The New Castle Refractories division, with plants located in Ohio, Pennsylvania and West Virginia, manufactures various types of non-graphitic refractory kiln furniture used by the ceramic and glass industries; firebrick, various types and designs of non-graphitic refractory special shapes for ferrous and nonferrous metal industries; refractory shapes for furnace linings and industrial furnace construction; various grades of insulating firebrick and graphite stopper heads. 6 REAL ESTATE OPERATIONS (Discontinued Operations) The Company previously developed Bryn Mawr Ocean Towers (three nine-story towers) on North Hutchinson Island, Florida, which were sold as condominiums. Pursuant to a formal plan and agreement dated September 29, 1995, the Company disposed of the remaining property dedicated to this project and has ceased any further real estate activities. This segment is therefore treated as "Discontinued Operations." (See Note 10 to Consolidated Financial Statements.) DISTRIBUTION Consumer products manufactured at the Sandusky, Ohio; Deer Lake, Pennsylvania; and Versailles, Missouri plants are distributed nationally through wholesale, commercial and retail stationers, school supply houses, industrial supply houses, blueprint and reproduction supply firms, art material distributors and retailers. In 1996, the Company opened a central distribution center in Shelbyville, Tennessee, to enhance service levels, especially with respect to large retail customers. The consumer products manufactured at the Canadian and Mexican plants are distributed nationally in these countries through wholesalers, distributors, school supply houses and retailers. The industrial products manufactured at the various plants are sold by direct sales, manufacturers' representatives and industrial distributors in North America. In addition, these products are sold worldwide, principally in Central and South America, Europe, the Philippines and Japan. RAW MATERIALS Graphite, which can be considered a strategic raw material for the Company's business, is sold by the Company in bulk and as a component, and is used in the manufacture of refractory products, lubricants and leads for 7 wood-cased pencils. Graphite is purchased from Brazil, Madagascar, India, Mexico, People's Republic of China, Sri Lanka, West Germany and Zimbabwe. There were no significant raw material shortages of any consequence during 1996 nor any anticipated for future periods. TRADEMARKS, PATENTS AND COPYRIGHTS The Company owns a large number of trademarks, patents and copyrights in each industry segment related to products manufactured and marketed by it, which have been secured over many years. These have been of value in the growth of the business and should continue to be of value in the future. However, in the opinion of the Company, its business generally is not dependent upon the protection of any patent or patent application or the expiration of any patent. SEASONAL ASPECTS OF THE BUSINESS The Consumer Group reflects greater portions (approximately 65% in 1996) of its sales in the third and fourth fiscal quarters of the year due to shipments of school orders to its distribution network. This practice, which is standard for this industry, usually causes the Company to incur additional bank borrowings during the period between shipment and payment. The Industrial Group has no material seasonal aspects. COMPETITION Both of the Company's industry segments are engaged in a highly competitive business with a number of competitors, some of whom are larger and have greater resources than the Company. Important to the Company's market position are the quality and performance of its products, its marketing and distribution systems, and the reputation developed over the many years that the Company has been in business. 8 RESEARCH AND DEVELOPMENT The Company employs approximately 17 full-time professional employees in the area of quality control and product development. The Company has established a centralized research and development laboratory in its Sandusky, Ohio facility. For accounting purposes, research and development expenses in any year presented in the accompanying Consolidated Financial Statements do not represent more than 1% of revenues. EMPLOYEES The total number of persons employed by the Company was approximately 1,240 of which 796 were employed in the United States. 9 ITEM 2. PROPERTIES - ------------------ The following properties of the Company are owned in fee and are collateralized or pledged under the Company's loan agreement with a consortium of lenders (First Union Capital Corporation as agent), except for the Heathrow, Florida, property, which is subject to a separate mortgage agreement. See Notes 3 and 4 to Consolidated Financial Statements. Most of the buildings are of steel frame and masonry or concrete construction. SQUARE FEET LOCATION OF FLOOR SPACE -------- -------------- Heathrow, Florida (Corporate Headquarters) 33,000 Sandusky, Ohio (Consumer) 276,000 Manchester Township, New Jersey (American Graphite) (Graphite and Lubricants division) 76,000 Near Burnet, Texas (Southwestern Graphite) (Graphite and Lubricants division) 97,000 New Castle, Pennsylvania (Refractories division) 131,000 Newell, West Virginia (Refractories division) 45,000 Massillon, Ohio (Refractories division) 113,000 Zoar, Ohio (Refractories division) 65,000 Acton Vale, Quebec, Canada (Dixon Ticonderoga Inc.) (Consumer) 32,000 Tlalnepantla, D.F., Mexico (Dixon Ticonderoga de Mexico, S.A. de C.V.) (Consumer) 55,000 Versailles, Missouri (Consumer) 120,000 Shelbyville, Tennessee (Consumer) 94,000 Deer Lake, Pennsylvania (Consumer) 150,000 The Company also owns a non-operating graphite mine near Burnet, Texas, included with land at historical cost in the consolidated balance sheets. 10 ITEM 3. LEGAL PROCEEDINGS - -------------------------- In March 1986, The Dixon Venture ("Venture") (an unrelated company) filed a civil action in the New Jersey Superior Court seeking recovery of damages and costs allegedly incurred by Venture in connection with the clean- up of industrial property acquired from the Company in Jersey City, New Jersey in February, 1984. Venture's claims were brought pursuant to the New Jersey Environmental Clean-up Responsibility Act ("ECRA"), an environmental remedial statute dealing with the transfer of industrial property. On April 24, 1996, a decision was rendered by the Superior Court of New Jersey in Hudson County finding the Company responsible for $1.94 million in certain environmental clean-up costs relating to this matter. Including pre- judgment interest on the damage award, it is estimated that the Company's exposure will not exceed approximately $3.3 million. The Company continues to evaluate pursuing other responsible parties for indemnification and/or contribution to the payment of this claim (including its insurance carriers and a legal malpractice action against its former attorneys) and is in the process of preparing and filing an appeal. As a result of the judgment, the Company increased its liability accrued for this matter to $3.3 million during fiscal 1996. Also see Note 12 to Consolidated Financial Statements. ITEM 4. SUBMISSION ON MATTERS TO VOTE OF SECURITY HOLDERS - ---------------------------------------------------------- None. 11 PART II ------- ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS ----------------------------------- Dixon Ticonderoga Company common stock is traded on the American Stock Exchange. The following table sets forth the low and high per share prices as per the American Stock Exchange closing prices for the applicable quarter. FISCAL FISCAL QUARTER ENDING 1996 1995 -------------- ------ ------ LOW HIGH LOW HIGH --- ---- --- ---- December 31 5.50 9.88 7.38 9.88 March 31 6.38 7.75 8.50 11.13 June 30 6.00 7.50 7.13 8.88 September 30 6.50 8.13 7.25 8.38 Since fiscal 1990, the Board of Directors has suspended payment of dividends. The Board will continue to review the Company's future performance and determine the dividend policy on a quarter-to-quarter basis. The Company's debt agreements restrict the amount of dividends which can be paid in the future. (See Notes 3 and 4 to Consolidated Financial Statements). The number of record holders of the Company's common stock at December 3, 1996, was 448. 12 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- DIXON TICONDEROGA COMPANY AND SUBSIDIARIES FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1996 (in thousands, except per share amounts) 1996 1995 1994 1993 1992 REVENUES $106,696 $95,565 $91,932 $82,138 $81,740 ======== ======= ======= ======= ======= INCOME FROM CONTINUING OPERATIONS $ 1,168 $ 1,658 $ 3,417 $ 476 $ 437 LOSS FROM DISCONTINUED OPERATIONS - (595) (116) (146) (179) EXTRAORDINARY ITEM (282) - - - - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - - - 235 - -------- ------- ------- ------ ------- NET INCOME $ 886 $ 1,063 $ 3,301 $ 565 $ 258 ======== ======= ======= ====== ======= EARNINGS (LOSS) PER COMMON SHARE: CONTINUING OPERATIONS $ .36 $ .52 $ 1.10 $ .15 $ .14 DISCONTINUED OPERATIONS - (.19) (.04) (.04) (.06) EXTRAORDINARY ITEM (.09) - - - - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - - - .07 - -------- ------- ------- ------- ------ NET INCOME $ .27 $ .33 $ 1.06 $ .18 $ .08 ======== ======= ======= ======= ======= TOTAL ASSETS $ 77,848 $70,158 $68,852 $63,946 $61,981 ======== ======= ======= ======= ======= LONG-TERM DEBT $ 25,119 $14,541 $19,141 $18,279 $23,083 ======== ======= ======= ======= ======= DIVIDENDS PER COMMON SHARE $ - $ - $ - $ - $ - ======== ======= ======= ======= ======= 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------- RESULTS OF OPERATIONS 1996 vs. 1995 Income from continuing operations before income taxes, minority interest and extraordinary items decreased $1,014,000 in 1996. In 1996 and 1995 there were provisions of $2,039,000 and $1,530,000, respectively, for litigation settlements and legal costs related to several lawsuits (see Item 3 and Note 12 to Consolidated Financial Statements). Foreign Consumer operating profits decreased $962,000 primarily due to provisions for doubtful accounts receivable (of approximately $500,000) in Mexico, as well as 1995 foreign currency gains of over $500,000. Also in 1996, there were additional distribution and promotional costs incurred by U.S. Consumer to service the mass retail and mega-store markets. 1995 vs. 1994 Income from continuing operations before income taxes and minority interest decreased $1,000,000 in 1995. Included in 1995 are provisions of $1,530,000 for litigation settlements and legal costs related to several lawsuits (see Item 3 and Note 12 to Consolidated Financial Statements). In 1994, there was a gain on sale of subsidiary stock and other assets of $2,313,000 relating primarily to the sale of stock in our Mexico subsidiary (see Note 8 to Consolidated Financial Statements). Net corporate expenses decreased $690,000 in 1995, while interest expense decreased $678,000. The interest expense reduction was principally due to the Mexican subsidiary's low borrowing position subsequent to the aforementioned sale of stock. 14 1994 vs. 1993: The improvement in income before income taxes amounted to $3,946,000 in 1994. The increase in gain on sale of subsidiary stock and other assets of $1,942,000 is primarily due to the sale of the stock in the Mexico subsidiary (see Note 8 to Consolidated Financial Statements). Increased revenue in the Consumer Group (primarily due to volume) led to better manufacturing efficiencies. New products and more aggressive marketing, particularly in the retail market, contributed to this volume increase. Industrial Group revenue improved principally due to Refractory division increases in volume and more favorable mix contributing to higher profitability. The interest expense increase was due primarily to higher average rates of interest in 1994. Discontinued Operations: The 1995 loss from discontinued operations of the real estate segment represents a net operating loss of $175,000 (net of a tax benefit of $104,000) and a loss on disposal of $420,000 (net of a tax benefit of $250,000). Net operating losses of the real estate segment was $116,000 in 1994. Extraordinary Item: The 1996 extraordinary charge of $282,303 represents costs associated with the early retirement of the Company's 10.59% Senior Subordinated Notes, due 1999. See Note 4 to Consolidated Financial Statements. 15 REVENUES Overall 1996 revenues increased $11,131,000 over the prior year. The changes by segment are as follows: Increase % Increase (Decrease) (Decrease) Total Volume Price/Mix ---------- ------------------------ Consumer U.S. $8,223,000 15 14 1 Consumer Foreign 3,082,000 19 19 - Industrial (174,000) (1) - (1) Consumer revenues in the United States increased primarily in the commercial office supply mega-stores and mass retail markets. The increase in Foreign Consumer revenue included increases of $1,100,000 in Canada and $1,960,000 in Mexico. In the prior year, Mexico revenue was depressed because of the devaluation of the Mexican peso that occurred in early fiscal 1995. This year's revenue decreased $1,700,000 in Mexico due to the decline of the peso value compared to the U.S. dollar. This decline was offset by increased peso selling prices. Revenues in 1995 increased $3,632,000 over the prior year. The changes by segment are as follows: Increase % Increase (Decrease) (Decrease) Total Volume Price/Mix ---------- ------------------------ Consumer U.S. $4,624,000 9 8 1 Consumer Foreign (2,198,000) (13) (9) (4) Industrial 1,206,000 5 4 1 U.S. Consumer revenue volume increases were primarily in the office supply mega-store market. The decrease in Foreign Consumer revenue was primarily due to the majority-owned subsidiary in Mexico. Revenue in Mexico decreased $5,200,000 due to the decline of the peso value compared to the U.S. dollar. This decrease was partially offset by increased peso selling prices. Industrial revenue increased primarily due to higher volume in the Refractory division. 16 Overall 1994 revenues increased $9,795,000 over the prior year. The increases and decreases by segment are as follows: Increase % Increase (Decrease) (Decrease) Total Volume Price/Mix ---------- ------------------------ Consumer U.S. $6,347,000 15 14 1 Consumer Foreign 1,807,000 11 12 (1) Industrial 1,641,000 7 3 4 The increase in U.S. Consumer Products volume was in both the commercial and mass retail markets and was enhanced by new product introductions. Foreign revenue increase was primarily by our subsidiary in Mexico. However, the foreign revenue increase is after revenue reductions in Canada and Mexico of $470,000 and $450,000, respectively, due to the decline of their local currency value (as compared with the U.S. dollar). Industrial revenue increased due principally to improved Refractory division product mix and higher volume. OPERATING PROFITS There was a decrease of $582,000 in operating profits by segment in 1996. Foreign Consumer operating profits decreased $962,000 primarily due to provisions for doubtful accounts receivable (of approximately $500,000) in Mexico, as well as 1995 foreign currency gains of over $500,000. U.S. Consumer operating profits increased $367,000. This increase was due to the U.S. Consumer revenue growth. However, additional distribution and promotional costs incurred to service the U.S. Consumer retail and mega-store markets partially offset revenue growth. Operating profits increased $1,476,000 in 1995. Foreign operations increased $984,000. Our Canadian subsidiary increase of $396,000 reflected higher revenues and a stable year with respect to that country's currency. The increase in Mexico was primarily due to increased shipments to the U.S. 17 and related plant efficiencies and currency gains. Industrial Group revenues increased $350,000 on higher Refractories division volume. U.S. Consumer operating profits were relatively flat. U.S. Consumer revenue and gross profit increases were offset by increased selling and distribution costs, primarily incurred to service the office supply mega-store markets. In 1994, operating profits by segment increased $2,718,000. Consumer increased $2,132,000 on significantly higher revenues. A decrease in the value of the local currency in Mexico was offset by price increases and volume. Industrial increased $500,000 on higher volume and favorable product mix of the Refractories division. MINORITY INTEREST Minority interest represents 49.9% of the net income of the consolidated subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. ($920,000 and $1,151,000 in 1996 and 1995, respectively), equivalent to the extent of the investment of the minority shareholders. As described in Note 8 to Consolidated Financial Statements, this minority interest was created by an initial public offering in September 1994. Accordingly, 1994 minority interest of $11,000 only reflects the portion of net income earned in the latter part of September 1994. EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS As discussed in Note 1 to Consolidated Financial Statements, the Financial Accounting Standards Board (FASB) issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement, which must be adopted by the Company no later than fiscal 1997, establishes accounting standards with respect to the impairment of long-lived assets. Its adoption is not expected 18 to materially affect the future results of operations or financial position of the Company. In 1995, the FASB also issued Statement No. 123, "Accounting for Stock- Based Compensation." The statement (effective for the Company in fiscal 1997) would provide certain specific disclosures regarding the value of stock option grants made in fiscal 1996 and thereafter. The Company does not expect to adopt the compensation recognition provision of the Statement, and, accordingly, it is not expected to affect the future results of operations or financial position of the Company. 19 LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition has benefited from its recent operating success and the completion of major financing initiatives. Cash flows from operating activities in 1996 improved by approximately $1.3 million over the prior year, due principally to more strict inventory control practices. Inventory levels were reduced in excess of $1 million, despite an increase in sales of 16%, in the Company's Consumer Group. In comparison, Consumer inventory levels increased 15% in 1995. This significant improvement in inventory management was offset by an increase in accounts receivable due to higher revenues. Company revenues for the fourth quarter increased 21% in 1996. As is the case historically, cyclical short-term borrowings (see below) financed peak mid-year increases in accounts receivable and inventories. The Company's investing activities included approximately $4 million in purchases of property and equipment in 1996. This higher level of purchases as compared with prior years is attributable to the construction of the Company's new corporate headquarters facility in Heathrow, Florida. Expenditures to complete this building project approximated $2.2 million in 1996 (with a total project cost of approximately $3.6 million). The construction costs were ultimately financed through a permanent $2.73 million mortgage arrangement. (See Note 4 to Consolidated Financial Statements). The Company also intends to finance certain strategic manufacturing equipment (in the amount of $2.8 million) under a long-term lease arrangement commencing in late 1996. Generally, all other major capital projects are discretionary in nature and thus no material purchase commitments exist. Other capital expenditures will include customary projects, and will continue to be funded from operations and existing financing arrangements. 20 The Company completed major refinancing activities during 1996. In July 1996, the Company entered into new financing arrangements with a consortium of lenders (First Union Commercial Corporation as agent) to provide additional working capital. The new loan and security agreement provides for a total of $48 million in financing. This includes a revolving line of credit facility in the amount of $40 million which bears interest at either the prime rate, plus 0.5%, or the prevailing LIBOR rate plus 2.5%. Borrowings under the revolving credit facility are based upon eligible accounts receivable and inventories of the Company's U.S. and Canada operations, as defined. The financing agreement also includes a term loan in the amount of $7.75 million. The term loan bears interest at the same rate, and is payable in varying monthly installments through 2001. The Company previously executed certain interest rate "swap" agreements which effectively fix the rate of interest on approximately $13 million of this debt at 8.75% to 8.87%. These new financing arrangements are collateralized by the tangible and intangible assets of the U.S. and Canada operations (including accounts receivable, inventories, property, plant and equipment, patents and trademarks) and a pledge of the capital stock of the Company's subsidiaries. The loan and security agreement contains provisions pertaining to the maintenance of certain financial ratios and annual capital expenditure levels, as well as restrictions as to payment of cash dividends. The Company is presently in compliance with all such provisions. These new arrangements provide up to $10 million in additional financing as compared with the Company's previous primary lender agreement. At September 30, 1996, the Company had approximately $27 million of unused lines of credit available under this new financing arrangement. 21 In September 1996, the Company also completed the private placement of $16.5 million of new 12% Senior Subordinated Notes, due 2003. The net proceeds were used to retire early the remaining $7 million of the Company's prior issue of Senior Subordinated Notes due 1999, and to reduce short-term borrowings, thus providing additional working capital. This transaction also reduced the Company's annual debt service obligations by approximately $3.3 million through 1998. The Company executed a reverse interest rate "swap" agreement which converts $10 million of the notes to a floating rate of interest (approximately 10.6% at September 30, 1996). In connection with the private placement, the Company issued to noteholders warrants to purchase 300,000 shares of Company stock at its market value of $7.24 per share. The note agreement contains provisions which limit the payment of dividends and require the maintenance of certain financial covenants and ratios, with which the Company is presently in compliance. Refer to Notes 3 and 4 to Consolidated Financial Statements for further description of the aforementioned new financing arrangements. The new and existing sources of financing and cash expected to be generated from future operations will, in management's opinion, be sufficient to fulfill all current and anticipated requirements of the Company's ongoing business and to meet all of its obligations. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------- DIXON TICONDEROGA COMPANY AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE PAGE Report of Independent Accountants 23 Consolidated Balance Sheets as of September 30, 1996 and 1995 24-25 Consolidated Statements of Operations For the Years Ended September 30, 1996, 1995 and 1994 26 Consolidated Statements of Shareholders' Equity For the Years Ended September 30, 1996, 1995 and 1994 27 Consolidated Statements of Cash Flows For the Years Ended September 30, 1996, 1995 and 1994 28-29 Notes to Consolidated Financial Statements 30-45 Schedule For the Years Ended September 30, 1996, 1995, and 1994: II. Valuation and Qualifying Accounts 46 Consent of Independent Accountants 47 Information required by other schedules called for under Regulation S-X is either not applicable or is included in the Consolidated Financial Statements or Notes thereto. 23 REPORT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors of Dixon Ticonderoga Company We have audited the accompanying consolidated financial statements and the financial statement schedule of Dixon Ticonderoga Company and subsidiaries as listed in the index on page 22 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dixon Ticonderoga Company and subsidiaries at September 30, 1996 and 1995, and the consolidated results of their operations and cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Orlando, Florida November 27, 1996 24
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 ASSETS 1996 1995 ------ ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 2,597,032 $ 1,513,622 Receivables, less allowance for doubtful accounts of $1,352,411 in 1996 and $796,715 in 1995 23,442,889 18,202,541 Inventories 31,460,934 32,638,385 Assets held for sale 94,937 436,306 Other current assets 2,949,859 2,254,101 ----------- ----------- Total current assets 60,545,651 55,044,955 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT: Land and buildings 15,711,724 12,908,945 Machinery and equipment 16,537,994 16,986,408 Furniture and fixtures 917,222 902,043 ----------- ----------- 33,166,940 30,797,396 Less accumulated depreciation (17,730,505) (17,229,617) ----------- ----------- 15,436,435 13,567,779 ----------- ----------- OTHER ASSETS 1,866,054 1,545,110 ----------- ----------- $77,848,140 $70,157,844 =========== =========== 25 LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 -------------------- ---- ---- CURRENT LIABILITIES: Notes payable $14,159,143 $17,877,665 Current maturities of long-term debt 1,613,773 4,587,016 Accounts payable 5,461,348 5,280,884 Accrued liabilities 10,934,838 8,388,309 ----------- ----------- Total current liabilities 32,169,102 36,133,874 ----------- ----------- LONG-TERM DEBT 25,119,305 14,540,884 ----------- ----------- DEFERRED INCOME TAXES AND OTHER 1,051,171 1,177,288 ----------- ----------- MINORITY INTEREST 3,517,006 3,073,375 ----------- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, par $1, authorized 100,000 shares, none issued -- -- Common stock, par $1, authorized 8,000,000 shares, issued 3,537,211 shares in 1996 and 3,448,466 shares in 1995 3,537,211 3,448,466 Capital in excess of par value 2,489,674 2,166,329 Retained earnings 13,526,520 12,640,762 Cumulative translation adjustment (2,669,031) (2,087,354) ----------- ----------- 16,884,374 16,168,203 Less treasury stock, at cost (243,433 shares in 1996; 255,147 shares in 1995) (892,818) (935,780) ----------- ----------- 15,991,556 15,232,423 ----------- ----------- $77,848,140 $70,157,844 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 26
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1996 1995 1994 ---- ---- ---- REVENUES $106,695,874 $95,565,000 $91,932,479 ------------ ----------- ----------- COSTS AND EXPENSES: Cost of goods sold 70,343,837 62,193,918 62,246,254 Selling and administrative expenses 27,955,760 24,241,328 22,721,878 ------------ ----------- ----------- 98,299,597 86,435,246 84,968,132 ------------ ----------- ----------- OPERATING INCOME 8,396,277 9,129,754 6,964,347 ------------ ----------- ----------- INTEREST EXPENSE (3,423,650) (3,652,824) (4,330,581) PROVISIONS FOR LITIGATION SETTLEMENTS AND RELATED COSTS (2,039,000) (1,530,377) -- GAIN ON SALE OF SUBSIDIARY STOCK AND OTHER ASSETS -- -- 2,313,470 ------------ ----------- ----------- (5,462,650) (5,183,201) (2,017,111) ------------ ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 2,933,627 3,946,553 4,947,236 INCOME TAXES 845,044 1,137,897 1,518,053 ------------ ----------- ----------- 2,088,583 2,808,656 3,429,183 MINORITY INTEREST 920,522 1,150,690 11,469 ------------ ----------- ----------- INCOME FROM CONTINUING OPERATIONS 1,168,061 1,657,966 3,417,714 DISCONTINUED OPERATIONS -- (594,923) (116,481) EXTRAORDINARY ITEM (282,303) -- -- ------------ ----------- ----------- NET INCOME $ 885,758 $ 1,063,043 $ 3,301,233 ============ =========== =========== EARNINGS (LOSS) PER COMMON SHARE: Continuing operations .36 $ .52 $ 1.10 Discontinued operations -- (.19) (.04) Extraordinary item (.09) -- -- ----------- ---------- ---------- Net income $ .27 $ .33 $ 1.06 =========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 27
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 Common Capital in Cumulative Stock $1 Excess of Retained Translation Treasury Par Value Par Value Earnings Adjustment Stock --------- --------- -------- ------------ -------- BALANCE, September 30, 1993 $ 3,376,835 $ 1,769,171 $ 8,276,486 $ (627,419) $(1,007,043) Net income 3,301,233 Cumulative translation adjustment 95,964 Employee stock options exercised 48,038 253,958 Employee Stock Purchase Plan (9,305 shares) 19,510 34,131 ----------- ----------- ---------- ----------- ----------- BALANCE, September 30, 1994 $ 3,424,873 $ 2,042,639 $11,577,719 $ (531,455) $ (972,912) Net income 1,063,043 Cumulative translation adjustment (1,555,899) Employee stock options exercised 23,593 91,985 Employee Stock Purchase Plan (10,123 shares) 31,705 37,132 ----------- ----------- ---------- ----------- ----------- BALANCE, September 30, 1995 $ 3,448,466 $ 2,166,329 $12,640,762 $(2,087,354) $ (935,780) Net income 885,758 Cumulative translation adjustment (581,677) Employee stock options exercised 88,745 295,368 Employee Stock Purchase Plan (11,714 shares) 21,977 42,962 ----------- ----------- ---------- ----------- ----------- BALANCE, September 30, 1996 $ 3,537,211 $ 2,489,674 $13,526,520 $(2,669,031) $ (892,818) =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 28
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Income from continuing operations $1,168,061 $1,657,966 $3,417,714 Loss from discontinued operations -- (594,923) (116,481) Loss from extraordinary item (282,303) -- -- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,361,081 2,379,728 2,502,451 Gain on sale of subsidiary stock and other assets -- -- (2,313,470) Deferred taxes (900,298) 83,802 (19,111) Income attributable to minority interest 920,522 1,150,690 11,469 (Income) loss attributable to currency translation (201) (511,424) 110,830 Changes in assets [(increase) decrease] and liabilities [increase(decrease)]: Receivables, net (5,649,182) 194,045 (3,053,682) Inventories 632,502 (4,929,306) (698,187) Other current assets 122,595 147,739 (260,203) Accounts payable and accrued liabilities 3,176,740 (21,632) 3,270,750 Other assets (530,503) 114,006 (331,606) ---------- ---------- ---------- Net cash provided by (used in) operating activities 1,019,014 (329,309) 2,520,474 ---------- ---------- ---------- Cash flows from investing activities: Purchases of plant and equipment (4,090,295) (3,007,547) (1,842,331) Proceeds from sale of assets -- -- 573,708 Proceeds from sale of subsidiary stock -- -- 5,734,723 ---------- ---------- ---------- Net cash provided by (used in) investing activities (4,090,295) (3,007,547) 4,466,100 29 1996 1995 1994 ---- ---- ---- Cash flows from financing activities: Principal additions to Senior Subordinated Notes 16,500,000 -- -- Principal reductions of Senior Subordinated Notes (10,350,000) (3,325,000) (3,325,000) Proceeds from additions to long-term debt 2,725,000 -- 9,666,667 Proceeds from additions to notes payable -- 8,040,299 7,937,368 Principal reductions of long-term debt (1,222,847) (1,131,276) (5,980,120) Principal reductions of notes payable (3,718,522) -- (14,248,878) Other non-current liabilities (1,949) (109,626) 113,341 Employee Stock Purchase Plan 70,939 68,837 53,641 Exercise of stock options 384,113 115,578 301,996 ---------- ---------- ---------- Net cash provided by (used in) financing activities 4,386,734 3,658,812 (5,480,985) ---------- ---------- ---------- Effect of exchange rate changes on cash (232,043) (631,098) (14,866) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,083,410 (309,142) 1,490,723 Cash and cash equivalents, beginning of year 1,513,622 1,822,764 332,041 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 2,597,032 $ 1,513,622 $ 1,822,764 =========== =========== =========== Supplemental Disclosures: Cash paid during the year for: Interest (net of amount capitalized) $3,545,106 $ 3,697,023 $ 4,282,857 Income taxes 972,403 1,616,427 400,411
The accompanying notes are an integral part of the consolidated financial statements. 30 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Business: Dixon Ticonderoga Company is a diversified manufacturer and marketer of writing and art products as well as a producer of graphite, lubricant and refractory products. Its largest principal customers are school products distributors, mass merchandisers and industrial manufacturers, although none account for over 6% of revenues. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Principles of consolidation: The consolidated financial statements include the accounts of Dixon Ticonderoga Company and all of its subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. Minority interest represents the minority shareholders' proportionate share of the equity of the Company's Mexico subsidiary (49.9%). Translation of foreign currencies: In accordance with Financial Accounting Standards Board (FASB) Statement No. 52, results from Canada, Mexico and United Kingdom operations are translated using average exchange rates during the period. Assets and liabilities denominated in local currency are translated into U.S. dollars at current exchange rates with the gain or loss being recorded in shareholders' equity. Gains and losses from foreign currency transactions are included in the Consolidated Statement of Operations. Cash and cash equivalents: Cash and cash equivalents include investment instruments with a maturity of three months or less at time of purchase. 31 Inventories: Inventories are stated at the lower of cost or market. Certain inventories amounting to $16,253,000 and $15,250,000, at September 30, 1996 and 1995, respectively, are stated on the last-in, first-out (LIFO) method of determining inventory costs. Under the first-in, first-out (FIFO) method of accounting, these inventories would be $958,000 and $1,282,000 higher at September 30, 1996 and 1995, respectively. All other inventories are accounted for using the FIFO method. All inventories that are stated on the LIFO method were acquired in 1983 as a result of an acquisition. This acquisition was treated as a purchase and accordingly, inventory was recorded at its fair market value for financial accounting purposes. As a result, the financial accounting basis for the LIFO inventories exceeds the LIFO tax basis by approximately $1,276,000 and $1,339,000 at September 30, 1996 and 1995, respectively. Inventories consist of (in thousands): September 30, 1996 1995 --------------------- Raw material $ 12,538 $ 12,450 Work in process 4,268 4,462 Finished goods 14,655 15,726 -------- -------- $ 31,461 $ 32,638 ======== ======== Assets held for sale: Assets held for sale represent idled and other assets specifically identified for sale within the next fiscal year. The assets are stated at their aggregate net book value which does not exceed estimated net realizable value. Property, plant and equipment: Property, plant and equipment are stated at cost. During 1996, capitalized interest (reflected in land and buildings) amounted to $120,443. Depreciation is provided principally on a straight-line basis over the estimated useful lives of the respective assets. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts. Any gain or loss is included in income. 32 Income taxes: The Company recognizes deferred tax assets and liabilities for future tax consequences of events that have been included in the financial statements or tax returns. Under this method, amounts for deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Accounting for long-lived assets: The FASB recently issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement, which must be adopted by the Company no later than fiscal 1997, establishes accounting standards with respect to the impairment of long-lived assets. Its adoption is not expected to materially affect the future results of operations or financial position of the Company. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year classifications. (2) ACCRUED LIABILITIES: The major components of accrued liabilities are as follows (in thousands): September 30, 1996 1995 ----------------------- Salaries and wages $ 2,012 $ 1,707 Employee benefit plans 769 797 Income taxes 1,572 1,173 Other 6,582 4,711 -------- -------- $ 10,935 $ 8,388 ======== ======== (3) NOTES PAYABLE: In July 1996, the Company entered into new financing arrangements with a consortium of lenders to provide additional working capital. The new loan and security agreement provides for a total of $48 million in financing through July 1999. This includes a revolving line of credit facility in the amount of $40 million which bears interest at either the prime rate (8.25% at September 30, 1996), plus 0.5%, or the prevailing LIBOR rate (approximately 5.5% at September 30, 1996) plus 2.5%. Borrowings under the revolving credit facility ($13,016,000 as of September 30, 1996) are based upon eligible accounts receivable and inventories of the Company's U.S. and Canada operations, as defined. In addition, the financing agreement also includes a term loan in the 33 amount of $7.75 million (see Note 4). In 1995, the Company executed an interest rate "swap" agreement which effectively fixes the rate of interest on approximately $5 million of the revolver debt at 8.87% for five years. The carrying value of borrowings under the revolving credit facility is a reasonable estimate of fair value as interest rates are based on prevailing market rates. These new financing arrangements are collateralized by the tangible and intangible assets of the U.S. and Canada operations (including accounts receivable, inventories, property, plant and equipment, patents and trademarks) and a pledge of the capital stock of the Company's subsidiaries. The loan and security agreement contains provisions pertaining to the maintenance of certain financial ratios and annual capital expenditure levels, as well as restrictions as to payment of cash dividends. As of September 30, 1996, the Company is presently in compliance with all such provisions. These new arrangements provide up to $10 million in additional financing as compared with the Company's previous primary lender agreement. At September 30, 1996, the Company had approximately $27 million of unused lines of credit available under this new financing arrangement. A fee of 0.25% is paid on the unused portion of the revolving credit facility. The weighted average interest rate of the Company's outstanding notes payable (including foreign borrowings) was 8.6%, 9.4% and 12.9% as of September 30, 1996, 1995 and 1994, respectively. (4) LONG-TERM DEBT: Long-term debt consists of the following (in thousands): September 30, 1996 1995 ------------------ 12% Senior Subordinated Notes $ 16,500 $ -- 10.59% Senior Subordinated Notes -- 10,350 Bank term loan 7,500 8,667 Building mortgage 2,717 -- Other 16 111 -------- ------- 26,733 19,128 Less-current maturities (1,614) (4,587) -------- ------- $ 25,119 $ 14,541 ======== ======== In September 1996, the Company completed the private placement of $16.5 million of new 12% Senior Subordinated Notes, due 2003. The net proceeds were used to retire early the remaining $7 million of the Company's prior issue of 10.59% Senior Subordinated Notes due 1999, to reduce short-term borrowings and to provide additional working capital. This transaction also reduced the Company's annual debt service obligations by approximately $3.3 million through 1998. The Company executed a reverse interest rate "swap" agreement which converts $10 million of the notes to a floating rate of interest (approximately 10.6% at September 30, 1996). In connection with the private placement, 34 the Company issued to noteholders warrants to purchase 300,000 shares of Company stock at its market value of $7.24 per share. The note agreement contains provisions which limit the payment of dividends and require the maintenance of certain financial covenants and ratios. As of September 30, 1996, the Company is in compliance with all such provisions. In connection with the early retirement of the 10.59% Senior Subordinated Notes, the Company incurred a loss on early extinquishment of debt of $448,303 ($282,303, after tax), presented as an extraordinary item in the accompanying consolidated financial statements. The loan and security agreement with the Company's primary lender (see Note 3) also includes a term loan in the amount of $7.75 million. Interest on the term loan is payable monthly at either the bank's prime rate (8.25% at September 30, 1995) plus 0.5% or the prevailing LIBOR rate (approximately 5.5% at September 30, 1995) plus 2.5%. In 1995, the Company executed an interest rate "swap" agreement which effectively fixes the term loan rate at 8.75% through its maturity. The term loan is payable in varying monthly installments through May 2001. In addition, in 1996 the Company entered into a mortgage agreement with respect to its corporate headquarters building in Heathrow, Florida. The mortgage (in the original amount of $2.73 million) is for a period of 15 years and bears interest at 8.1%. Carrying values of the Senior Subordinated Notes, the bank term loan and the building mortgage are reasonable estimates of fair value as interest rates are based on prevailing market rates. Aggregate maturities of long-term debt are as follows (in thousands): 1997 $ 1,614 1998 1,662 1999 1,782 2000 1,791 2001 6,746 Thereafter 13,138 ------- $26,733 ======= 35 (5) INCOME TAXES: The components of net deferred tax liability recognized in the accompanying consolidated balance sheet are as follows (in thousands): 1996 1995 ------- ------- U.S. current deferred tax assets (included in other current assets) $ 1,884 $ 1,267 Foreign current deferred tax liability (included in accrued liabilities) (758) (1,071) U.S. and foreign, noncurrent deferred tax liability (included in deferred income taxes and other) (1,017) (1,155) ------- ------- Net deferred tax asset (liability) $ 109 $ (959) ======= ======= Deferred tax assets: Vacation pay $ 193 $ 168 Accrued pension 175 147 Accrued legal 983 381 Accrued environmental costs 135 151 Accounts receivable 224 216 Other 111 -- Foreign net operating loss carryforward 504 492 Valuation allowance (504) (492) ------- ------- Total deferred tax assets 1,821 1,063 ------- ------- Deferred tax liabilities: Inventories (549) (786) Depreciation (461) (464) Property, plant and equipment (502) (525) Foreign dividend income (200) (200) Other -- (47) ------- ------- Total deferred tax liability (1,712) (2,022) ------- ------- Net deferred tax asset (liability) $ 109 $ (959) ======= ======= It is the policy of the Company to accrue deferred income taxes on temporary differences related to the financial statement carrying amounts and tax bases of investments in foreign subsidiaries which are expected to reverse in the foreseeable future. Certain undistributed earnings of foreign subsidiaries that are essentially permanent in duration and not expected to reverse in the foreseeable future approximate $8,600,000 as of September 30, 1996. The determination of the unrecognized deferred tax liability for such temporary differences is not practicable. 36 The provision for income taxes (benefit) from continuing operations is comprised of the following (in thousands): 1996 1995 1994 ---- ---- ---- Current: U.S. Federal $ 910 $ 795 $ 76 State 13 44 70 Foreign 822 215 1,391 ------ ------ ------ $1,745 $1,054 $1,537 ------ ------ ------ Deferred: U.S. Federal (740) (612) 88 Foreign (160) 696 (107) ------ ------ ------ (900) 84 (19) ------ ------ ------ $ 845 $1,138 $1,518 ====== ====== ====== Foreign deferred tax provision (benefit) is comprised principally of temporary differences related to Mexico asset purchases. U.S. deferred benefit in 1996 and 1995 results primarily from expenses accrued but not deductible for taxes. The Company has net operating loss carryforwards for its United Kingdom subsidiary of approximately $2,000,000 without an expiration date. The differences between the provision for income taxes on continuing operations computed at the U.S. statutory federal income tax rate and the provision in the consolidated financial statements are as follows (in thousands): 1996 1995 1994 ---- ---- ---- Amount computed using statutory rate $ 997 $1,342 $1,682 Foreign income (327) (329) (203) State taxes, net of federal benefit 9 29 46 Permanent differences 126 104 154 Difference between tax and book basis of subsidiary stock - - 386 Utilization of NOL valuation allowance - - (400) NOL from utilization of foreign tax credits - - (113) Others 40 (8) (34) ------ ------ ------ Provision for income taxes $ 845 $1,138 $1,518 ====== ====== ====== 37 Permanent differences result primarily from intercompany net income that is eliminated from the consolidated statements of operations but are taxed in various jurisdictions. (6) EMPLOYEE BENEFIT PLANS: The Company maintains several defined benefit pension plans covering substantially all union employees. The benefits are based upon fixed dollar amounts per years of service. The assets of the various plans (principally corporate stocks and bonds, insurance contracts and cash equivalents) are managed by independent trustees. The policy of the Company and its subsidiaries is to fund the minimum annual contributions required by applicable regulations. The following table sets forth the plans' funded status (accumulated benefits exceed assets in all plans) at September 30, 1996 and 1995 (in thousands): September 30, 1996 1995 -------------- Actuarial present value of: Accumulated benefit obligation $(3,530) $(3,366) ======= ======= Projected benefit obligation $(3,530) $(3,366) Plan assets at market value 2,277 2,030 ------- ------- Projected benefit obligation in excess of plan assets (1,253) (1,336) Unrecognized net gain from past experience different from assumptions 474 441 Unrecognized net obligation being recognized over periods from 10 to 16 years 762 800 ------- ------- Pension liability $ (17) $ (95) ======= ======= Net periodic pension costs include the following components (in thousands): 1996 1995 1994 ---- ---- ---- Service costs - benefits earned during period $ 124 $ 100 $ 99 Interest cost on projected benefit obligation 222 184 179 Actual (return) loss on plan assets (167) (150) 28 Net amortization and deferral 155 155 (44) ----- ----- ----- Net periodic pension cost $ 334 $ 289 $ 262 ===== ===== ===== 38 In determining the projected benefit obligation, the assumed discount rates ranged from 4.5% to 7.5% for 1996, 6.0% to 7.5% for 1995, and 4.5% to 7.5% for 1994. The expected long-term rates of return on assets used in determining net periodic pension cost ranged from 7.5% to 8.5% for 1996, 7.5% to 8.5% for 1995, and 7.5% to 9% for 1994. There are no assumed rates of increase in compensation expense in any year, as benefits are fixed and do not vary with compensation levels. The Company also maintains a defined-contribution plan (401K) for all non-union domestic employees who meet minimum service requirements, as well as a supplemental deferred contribution plan for certain executives. Company contributions under the plans consist of a basic 3% of the compensation of participants for the plan year, and for those participants who elected to make voluntary contributions to the plan, matching contributions up to an additional 4%, as specified in the plan. Charges to operations for these plans for the years ended September 30, 1996, 1995 and 1994 were $586,000, $552,000, and $479,000, respectively. In fiscal 1994, the Company adopted FASB Statement No. 106 "Employers Accounting for Postretirement Benefits Other Than Pensions". This statement generally requires the accrual of health care benefits and other postretirement benefits over the course of the employees' active service. For substantially all current employees, there are no postretirement benefits provided, except for pension plans. The current expenses and the effect of adopting the new statement are not material. (7) SHAREHOLDERS' EQUITY: The Company provides an employee stock purchase plan under which 100,000 shares of its common stock can be issued. Among the terms of this plan, eligible employees may purchase through payroll deductions shares of the Company's common stock up to 10% of their compensation at the lower of 85% of the fair market value of the stock on the first or last day of the plan year (May 1 and April 30). On May 1, 1996, 1995, and 1994, 11,714, 10,123, and 9,305 shares, respectively, were issued under this plan. At September 30, 1996, there are 19,689 shares available for future purchases under the plan. In addition, the Company has granted options to key employees, under the 1979 and 1988 Dixon Ticonderoga Company Executive Stock Plans to purchase shares of its common stock at the market price on the date of grant. Options under the 1979 Plan (as amended) become exercisable one year after date of grant and were exercisable during a period not to exceed ten years from date of grant. All remaining options under the 1979 Plan were exercised during 1996. Under the 1988 Plan (as amended) options vest 25% after one year; 25% after two years; and 50% after three years, and remain exercisable for a period of three years from the date of vesting. All options expire three months after termination of employment. At September 30, 1996, there were 287,192 options exercisable and 231,390 shares available for future grants under the Plans. The following table summarizes the combined stock options activity for 1996, 1995 and 1994: 39
1996 1995 1994 ---- ---- ---- Number of Option Number of Option Number of Option Shares Price Shares Price Shares Price ---------------- ---------------- ---------------- Options outstanding 74,026 $4.20 74,026 $4.20 94,213 $4.20 beginning of year 52,333 4.75 75,302 4.75 103,152 4.75 1,500 5.13 2,000 5.13 2,000 5.13 42,375 7.75 43,000 7.75 46,000 7.75 2,000 6.13 2,000 6.13 99,000 8.63 Options exercised (74,026) 4.20 (20,187) 4.20 (14,069) 4.75 (22,969) 4.75 (27,850) 4.75 (500) 5.13 (125) 7.75 Options granted 2,000 6.13 94,000 6.75 17,000 7.13 2,000 8.13 100,000 8.63 Options expired (1,447) 4.75 or canceled (1,500) 5.13 (500) 7.75 (3,000) 7.75 (2,000) 8.13 (2,000) 8.63 (1,000) 8.63 (2,000) 6.75 ------- ------- ------- 287,192 271,234 196,328
In 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation." The statement (effective for the Company in fiscal 1997) provides for certain specific disclosures regarding the value of stock option grants made in fiscal 1996 and thereafter. The Company does not expect to adopt the compensation recognition provision of the Statement, and, accordingly, it is not expected to affect the future results of operations or financial position of the Company. The specific disclosures required by the Statement have not been calculated at this time. In March 1995, the Company declared a dividend distribution of one Preferred Stock Purchase Right on each share of Company common stock. Each Right will entitle the holder to buy one-thousandth of a share of a new series of preferred stock at a price of $30.00 per share. The Rights will be exercisable only if a person or group (other than the Company's chairman, Gino N. Pala, and his family members) acquires 20% or more of the outstanding shares of common stock of the Company or announces a tender offer following which it would hold 30% or more of such outstanding common stock. The Rights entitle the holders other than the acquiring person to purchase Company common stock having a market value of two times the exercise prices of the Right. If, 40 following the acquisition by a person or group of 20% or more of the Company's outstanding shares of common stock, the Company were acquired in a merger or other business combination, each Right would be exercisable for that number of the acquiring company's shares of common stock having a market value of two times the exercise prices of the Right. The Company may redeem the Rights at one cent per Right at any time until ten days following the occurrence of an event that causes the Rights to become exercisable for common stock. The Rights expire in ten years. (8) GAIN ON SALE OF SUBSIDIARY STOCK AND OTHER ASSETS: In September 1994, the Company completed an initial public offering of the stock of its wholly-owned subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. ("Dixon Mexico"). The underwriter for the offering was Casa de Bolsa Prime, S.A. de C.V. The offering represented 49.9% of the shares of Dixon Mexico and was placed in the new Mexican Intermediate Market. A total of 16,627,760 shares were sold at a per-share price of N$1.35 (new pesos) in a mixed offering. Of this amount, 4,163,605 shares (or approximately 25%) were sold in a primary offering with the net proceeds going to Dixon Mexico for working capital and/or the reduction of cyclical bank borrowings. The balance (12,464,155 shares or approximately 75%) represented a secondary offering of shares owned by the Company with the net proceeds going to reduce U.S. debt. The net proceeds (after underwriting commissions and related expenses) were approximately N$5 million from the primary offering and N$16 million from the secondary offering (or U.S. $1.4 million and U.S. $4.7 million, respectively). Proceeds from the offering (after taxes of approximately U.S. $1.0 million) reduced the Company's consolidated debt (net of cash balances) by approximately U.S. $5 million. The net after- tax gain from the transaction was approximately U.S. $1.6 million. (The gain on sale of company-owned shares was approximately U.S. $970,000 and on the sale of new shares in the subsidiary was U.S. $630,000). The Underwriting Agreement between the Company, Dixon Mexico and Casa de Bolsa Prime, S.A. de C.V., provided for a firm offering of shares as described above at the per-share price of N$1.35, less underwriting commissions of 5%, plus other customary expenses. Prior to the offering, there were no relationships between Casa de Bolsa Prime, S.A. de C.V. and either the Company or Dixon Mexico. After the successful completion of the offering, the Company maintained 50.1% controlling ownership of Dixon Mexico and five of nine seats on its board of directors. The remaining four seats on the Dixon Mexico board of directors will be held by designees of Casa de Bolsa Prime, S.A. de C.V. or other investors having a minimum of 10% ownership in Dixon Mexico. To protect the continuing business relationships between the Company and Dixon Mexico and ensure the continuity of management planning, development and administration of the operation, the Company executed a trademark license agreement and various other business agreements with Dixon Mexico. 41 The trademark license agreement is for a minimum term of ten years. All other agreements are for a minimum term of five years. In return for the rights, services and assistance provided by the Company under these agreements, Dixon Mexico will pay to the Company a total fee of 1.5% of its total monthly sales. Also in fiscal 1994, the Company sold idle property in Westampton, New Jersey, generating net proceeds of $460,000 (which approximated its net book value), as well as certain idle equipment. In addition, the Company expensed approximately $300,000 to provide for contingencies related to a previous sale of property. (9) EARNINGS PER COMMON SHARE: Earnings per common share have been computed based upon the total weighted average number of common shares outstanding (3,233,684, 3,180,626, and 3,114,538 in 1996, 1995 and 1994, respectively). (10) DISCONTINUED OPERATIONS: Pursuant to a 1995 formal plan and agreement, the Company transferred the remaining property and its developmental rights dedicated to the Bryn Mawr Ocean Towers Condominium project to its Association. Discontinued operations in 1995 reflect a loss on disposal of $420,000 (net of a tax benefit of $250,000). The Real Estate segment has been accounted for as a discontinued operation as of September 30, 1995, and, accordingly, its operating results are reported in this manner in all years presented in the accompanying Consolidated Financial Statements and related data. Revenues of the Real Estate segment were $135,000 in 1994. There were no revenues in 1995. Net real estate operating losses were $279,000 and $126,000 in 1995 and 1994, respectively. Related income tax benefits were $104,000 and $10,000 in 1995 and 1994, respectively. 42 (11) LINE OF BUSINESS REPORTING: In 1996, the Company redefined its principal business segments to reflect its current management structure and strategic objectives. Accordingly, certain prior year amounts have been reclassified to conform with the related current year presentation. The Company has two principal business segments -- its Consumer Group and Industrial Group. The following information sets forth certain data pertaining to each line of business as of September 30, 1996, 1995 and 1994, and for the years then ended (in thousands). Consumer Industrial Total Group Group Company -------- ---------- ------- Net revenues: 1996 $81,756 $24,940 $106,696 1995 $70,451 $25,114 $ 95,565 1994 $68,025 $23,908 $ 91,933 Operating profits: 1996 $ 6,082 $ 3,707 $ 9,789 1995 $ 6,677 $ 3,694 $ 10,371 1994 $ 5,554 $ 3,341 $ 8,895 Certain corporate expenses have been allocated based upon respective segment sales. Interest expense was $3,424, $3,653 and $4,330; litigation settlements and related costs were $2,039 in 1996 and $1,530 in 1995; general corporate expenses were $1,393, $1,241 and $1,931 in 1996, 1995 and 1994 respectively; gains on sales of assets were $2,313 in 1994, resulting in income from continuing operations before income taxes of $2,934, $3,947, and $4,947 in 1996, 1995 and 1994, respectively. Consumer Industrial Total Group Group Company -------- ---------- ------- Identifiable assets: 1996 $59,115 $13,417 $ 72,532 1995 $51,373 $13,801 $ 65,174 1994 $51,090 $13,555 $ 64,645 43 Corporate assets were $5,316, $4,984, and $3,423, at September 30, 1996, 1995 and 1994, respectively. Assets of discontinued operations were $783 at September 30, 1994. Consumer Industrial Total Group Group Company -------- ---------- ------- Depreciation and amortization: 1996 $ 1,296 $ 441 $ 1,737 1995 $ 1,347 $ 456 $ 1,803 1994 $ 1,578 $ 437 $ 2,015 Expenditures for plant and equipment: 1996 $ 1,250 $ 585 $ 1,835 1995 $ 1,029 $ 461 $ 1,490 1994 $ 898 $ 704 $ 1,602 Corporate depreciation and amortization were $624, $577, and $487 for the years ended September 30, 1996, 1995 and 1994, respectively. Corporate expenditures for equipment were $2,418, $1,601, and $389 in 1996, 1995 and 1994, respectively. Foreign operations (Consumer Group): Operating Identifiable Revenues Profits Assets -------- --------- ------------ 1996: Canada $ 8,715 $ 670 $ 6,277 Mexico 9,544 1,946 8,906 United Kingdom 873 (45) 635 1995: Canada $ 7,623 $ 576 $ 6,839 Mexico 7,588 2,997 8,085 United Kingdom 839 (40) 648 1994: Canada $ 7,087 $ 180 $ 4,433 Mexico 10,551 2,431 10,475 United Kingdom 617 (62) 483 44 (12) COMMITMENTS AND CONTINGENCIES: Under an agreement with Warner Bros. Consumer Products, the Company manufactures and markets in the U.S. and Canada a complete line of products featuring the famous Looney Tunes characters. Under the terms of the agreement, the Company has the right to market and sell all types of pencils, pens, crayons, chalks, markers, paints, art kits and related items. Through fiscal 1996, the Company has exceeded its minimum obligation under the agreement and currently pays a royalty of 10% on all related sales. In 1995, the Company entered into employment agreements with two executives which provide for the continuation of salary (currently aggregating $31,700 per month) and related employee benefits for a period of 24 months following their termination of employment under certain changes in control of the Company. In addition, all options held by the executives would become immediately exercisable upon the date of termination and remain exercisable for 90 days thereafter. The Company, in the normal course of business, is party in certain litigation. Ongoing litigation includes a claim under New Jersey's Environmental Clean-Up Responsibility Act (ECRA) by a 1984 purchaser of industrial property from the Company. On April 24, 1996, a decision was rendered by the Superior Court of New Jersey in Hudson County finding the Company responsible for $1.94 million in certain environmental clean-up costs relating to this matter. Including pre- judgment interest on the damage award, it is estimated that the Company's exposure will not exceed approximately $3.3 million. The Company continues to evaluate pursuing other responsible parties for indemnification and/or contribution to the payment of this claim (including its insurance carriers and a legal malpractice action against its former attorneys) and is in the process of preparing and filing an appeal. As a result of the judgment, a provision of approximately $2 million ($1.44 million, net of tax or 45 cents per share) has been recorded in 1996. In 1995, the Company provided approximately $1.5 million in total ($960,000 net of tax or 30 cents per share) for settlement and related legal costs associated with three separate lawsuits, including the aforementioned ECRA claim. The Company has evaluated the merits of other litigation and believes their outcome will not have a further material effect on the Company's future results of operations or financial position. The Company is aware of several environmental matters related to certain facilities purchased or to be sold. The Registrant assesses the extent of these matters on an ongoing basis. In the opinion of management (after taking into account accruals), the resolution of these matters will not materially affect the Company's future results of operations or financial position. 45 (13) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In Thousands, Except Per Share Data): 1996: First Second Third Fourth Revenues $20,946 $20,622 $33,170 $31,958 Operating income 980 1,016 3,680 2,720 Income (loss) before taxes and minority interest 365 (1,814)* 2,759 1,624 Minority interest (114) (127) (348) (332) Extraordinary item -- -- -- (282) Net income (loss) 151 (1,254)* 1,417 572 Earnings (loss) per share .05 (.39)* .44 .17 1995: First Second Third Fourth Revenues $21,393 $19,371 $28,446 $26,355 Operating income 1,373 1,623 3,181 2,953 Income before taxes and minority interest 618 784 2,185 360* Minority interest (58) (332) (154) (607) Discontinued operations (20) (30) (100) (445) Net income (loss) 302 140 1,185 (564)* Earnings (loss) per share .10 .04 .37 (.18)* * Reflects provision for litigation settlements and related costs as described in Note 12. (14) SUBSEQUENT EVENT: On November 22, 1996, the Company's New Castle Refractories Division entered into an agreement to perpetually license certain silicon carbide refractory brick technology from Carborundum Corporation. Under the terms of the perpetual license agreement, the Company is obligated to pay a fixed sum of $450,000 with payments made through 2001 or earlier, if certain stipulated sales levels are reached. The Company also executed related agreements to, at its option, purchase manufactured product or specific equipment from Carborundum Corporation. 46
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 Deductions Balance at Additions From Balance Beginning Charged Reserves at Close Description of Period to Income (1) of Period ----------- ---------- --------- ---------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year Ended September 30, 1996 $ 796,715 $ 977,965 $ 422,269 $1,352,411 ========= ========= ========= ========== Year ended September 30, 1995 $ 564,905 $ 421,850 $ 190,040 $ 796,715 ========= ========= ========= ========== Year ended September 30, 1994 $ 610,427 $ 198,647 $ 244,169 $ 564,905 ========= ========= ========= ==========
(1) Write-off of accounts considered to be uncollectible (net of recoveries). 47 CONSENT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors of Dixon Ticonderoga Company We consent to the incorporation by reference into the previously filed registration statements of Dixon Ticonderoga Company on Form S-8 (File Nos. 33-20054 and 33-23380) of our report, dated November 27, 1996, on our audit of the consolidated financial statements and financial statement schedule of Dixon Ticonderoga Company and subsidiaries as of September 30, 1996, 1995 and 1994, and for the years then ended, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Orlando, Florida December 19, 1996 PAGE> 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES - --------------------------------------------------------------------- None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------------------------------- Information required under this Item with respect to Directors will be contained in the Company's 1996 Proxy Statement, pursuant to Regulation 14A, which is incorporated herein by reference. The following table sets forth the names and ages of the Company's Executive Officers, together with all positions and offices held with the Company by such Executive Officers. All Executive Officers are subject to re-election or re-appointment by the Board of Directors at the first Directors' Meeting succeeding the next Annual Meeting of shareholders. Name Age Title ---- --- ----- Gino N. Pala 68 Chairman of the Board since February (Father-in-law of 1989; President and Chief Executive Richard F. Joyce) Officer since July 1985; prior thereto President and Co-chief Executive Officer since 1978. Richard A. Asta 40 Executive Vice President of Finance and Chief Financial Officer since February 1991; prior thereto Senior Vice President - Finance and Chief Financial Officer since March 1990. Richard F. Joyce 41 Vice Chairman of the Board since (Son-in-law of January 1990; President and Chief Gino N. Pala) Operating Officer, Consumer Group, since March, 1996; Executive Vice President and Chief Legal Executive since February 1991; prior thereto Corporate Counsel since July 1990. 49 Leonard D. Dahlberg, Jr. 45 Executive Vice President, Industrial Group, since March 1996; prior thereto Executive Vice President of Manufacturing/Consumer Products Division since August 1995; prior thereto Senior Vice President of Manufacturing since February 1993; prior thereto Vice President of Manufacturing since March 1990. Kenneth A. Baer 50 Vice President and Treasurer since January 1991; prior thereto Treasurer since November 1985. Laura Van Camp 45 Corporate Secretary since January 1986; prior thereto secretary to President and Chief Executive Officer since February 1982. John Adornetto 55 Vice President and Corporate Controller since January 1991; prior thereto Corporate Controller since September 1978. Richard H. D'Antonio 48 Senior Vice President and Chief Information Officer since March 1996; prior thereto Vice President of Information Services since October 1993; prior thereto Principal of RHD Management Consulting since May 1990. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- Information required under this Item will be contained in the Company's 1996 Proxy Statement which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------------------------------------------------- Information required under this Item will be contained in the Company's 1996 Proxy Statement which is incorporated herein by reference. 50 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Information required under this Item will be contained in the Company's 1996 Proxy Statement which is incorporated herein by reference. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) Documents filed as part of this report: 1. Financial statements See index under Item 8. Financial Statements and Supplementary Data. 2. Exhibits The following exhibits are required to be filed as part of this Annual Report on Form 10-K: (3) Amended and Restated Bylaws (10)a. First Modification of Amended and Restated Revolving Credit Loan and Security Agreement by and among Dixon Ticonderoga Company, Dixon Ticonderoga, Inc., First Union Commercial Corporation, First National Bank of Boston and National Bank of Canada (10)b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant Purchase Agreement (10)c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock Purchase Warrant Agreement (10)d. License and Technological Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company (10)e. Equipment Option and Purchase Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company (10)f. Product Purchase Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company (21) Subsidiaries of the Company (27) Financial Data Schedule (b) Reports on Form 8-K: None. 51 SIGNATURES Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. DIXON TICONDEROGA COMPANY /s/ Gino N. Pala --------------------------- Gino N. Pala, President and Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Company in the capacities indicated. /s/ Gino N. Pala Chairman of Board, President, Chief - -------------------------- Executive Officer and Director Gino N. Pala /s/ Richard F. Joyce Vice Chairman, Executive Vice President/ - -------------------------- Corporate Counsel and Director Richard F. Joyce /s/ Richard A. Asta Executive Vice President of Finance and - -------------------------- Chief Financial Officer Richard A. Asta /s/ Bobby Brantley Director - -------------------------- Bobby Brantley /s/ John E. Ramondo Director - -------------------------- John E. Ramondo /s/ Joseph R. Sadowski Director - -------------------------- Joseph R. Sadowski /s/ Philip M. Shasteen Director - -------------------------- Philip M. Shasteen /s/ Samuel B. Casey, Jr. Director - -------------------------- Samuel B. Casey, Jr. /s/ Ben Berzin, Jr. Director - -------------------------- Ben Berzin, Jr. 52 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES EXHIBIT (21) TO 1996 ANNUAL REPORT ON FORM 10-K SUBSIDIARIES OF THE COMPANY All of the Company's subsidiaries as of September 30, 1996, are listed below. All subsidiaries are included in the consolidated financial statements of the Company. State Or Percentage of Jurisdiction Voting Of Organization Securities Owned Bryn Mawr Ocean Resorts, Inc. (a) Florida 100% Dixon Ticonderoga, Inc. Ontario, Canada 100% Dixon Ticonderoga Company de Mexico, S.A. de C.V. (subsidiary of Dixon Ticonderoga, Inc.) Mexico 50.1% Ticonderoga Graphite Inc. (a) New York 100% Dixon Europe, Limited United Kingdom 100% (a) Inactive EX-3 2 AMENDED & RESTATED BYLAWS 1 BYLAWS OF DIXON TICONDEROGA COMPANY. ARTICLE I STOCKHOLDERS SECTION 1. PLACE OF STOCKHOLDERS' MEETINGS. All meetings of the stockholders of the Corporation shall be held at such place or places, within or outside the State of Delaware, as may be fixed by the Board of Directors from time to time or as shall be specified in the respective notices thereof. SECTION 2. DATE, HOUR AND PURPOSE OF ANNUAL MEETINGS OF STOCKHOLDERS. Annual Meetings of Stockholders shall be held on such day and at such time as the Directors may determine from time to time by resolution, at which meeting the stockholders shall elect, by a plurality of the votes cast at such election, such members of the Board of Directors whose terms do not continue beyond such Annual Meeting, and transact such other business as may properly be brought before the meeting. SECTION 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the stockholders entitled to vote may be called by the Chairman of the Board, the President or any Vice President, the Secretary or by the Board of Directors by vote of a majority of its members. SECTION 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise expressly required or permitted by the laws of Delaware, not less than ten days nor more than sixty days before the date of every stockholders' meeting the Secretary shall give to each stockholder of record entitled to vote at such meeting written notice stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such notice, if mailed, shall be deemed to be given when deposited in the United States mail, with postage thereon prepaid, addressed to the stockholder at the post office address for notices to such stockholder as it appears on the records of the Corporation. An Affidavit of the Secretary or an Assistant Secretary or of a transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. SECTION 5. QUORUM OF STOCKHOLDERS. (a) Unless otherwise provided by the laws of Delaware, at any meeting of the stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall constitute a quorum. 2 (b) At any meeting of the stockholders at which a quorum shall be present, the holders of a majority of shares representing votes entitled to be cast, which holders are present in person or by proxy, may adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting other than announcement at the meeting shall not be required to be given, except as provided in paragraph (d) below and except where expressly required by law. (c) At any adjourned meeting at which a quorum shall be represent, any business may be transacted which might have been transacted at the meeting originally called, but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof, unless a new record date is fixed by the Board of Directors. (d) If an adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjournment meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 6. CHAIRMAN AND SECRETARY OF MEETING. The Chairman, or in his absence, the President, or in his absence, any Vice President, shall preside at meetings of the stockholders. The Secretary shall act as secretary of the meeting, or in his or her absence an Assistant Secretary shall act, or if neither is present, then the presiding officer shall appoint a person to act as secretary of the meeting. SECTION 7. VOTING BY STOCKHOLDERS. Except as may be otherwise provided by the Certificate of Incorporation or by these Bylaws, at every meeting of the stockholders each stockholder shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation on the record date for the meeting. At all meetings of the stockholders for the election of Directors, a plurality of the votes cast shall be sufficient to elect. All matters other than the election of Directors shall be decided by the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting, except as otherwise permitted or required by the laws of Delaware, the Certificate of Incorporation or these Bylaws. SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument revoking the proxy or by delivering to the Secretary of the Corporation a proxy in accordance with applicable law bearing a later date. Except with respect to the election of Directors, voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. 3 SECTION 9. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (c) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 10. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. 4 SECTION 11. LIST OF STOCKHOLDERS. (a) At least ten days before every meeting of stockholders, the Secretary shall prepare or cause to be prepared a complete list of the stockholders entitled to vote at the meeting, arranged, in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. (b) During ordinary business hours, for a period of at least ten days prior to the meeting, such list shall be open to examination by any stockholder for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. (c) The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and it may be inspected by any stockholder who is present. (d) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 12. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this By- Law shall constitute presence in person at such meeting. SECTION 13. CONDUCT OF MEETINGS. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. 5 ARTICLE II DIRECTORS SECTION 1. POWERS OF DIRECTORS. The property, business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all the powers of the Corporation except such as are by the laws of Delaware or the Certificate of Incorporation or these Bylaws required to be exercised or done by the stockholders. SECTION 2. NUMBER, METHOD OF ELECTION, TERMS OF OFFICE DIRECTORS. The number of Directors which shall constitute the whole Board of Directors shall be such as from time to time determined by resolution of the Board of Directors, but the number shall not be less than five nor more than thirteen provided that the tenure of a Director shall not be affected by any decrease in the number of Directors so made by the Board. Each Director shall hold office until his successor is elected and qualified, provided however that a Director may resign at any time. SECTION 3. VACANCIES ON BOARD OF DIRECTORS. (a) Any Director may resign his office at any time by delivering his resignation in writing to the Chairman or the President or the Secretary. It will take effect at the time specified therein, or if no time is specified, it will be effective at the time of its receipt by the Corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. (b) Any vacancy or newly created Directorship resulting from any increase in the authorized number of Directors may be filled by vote of a majority of the Directors then in office, though less than a quorum, and any Director so chosen shall hold office until the next election by the stockholders of the class for which such Directors shall have been chosen and until his successor is duly elected and qualified, or until his earlier resignation or removal. SECTION 4. MEETINGS OF THE BOARD OF DIRECTORS. (a) The Board of Directors may hold their meetings, both regular and special, either within or outside the State of Delaware. (b) Regularly scheduled meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by resolution of the Board of Directors. (c) The first meeting of each Board of Directors which includes newly elected members shall be held as soon as practicable after the Annual Meeting of the stockholders, for the election of officers and the transaction of such other business as may come before it. 6 (d) Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman or the President or at the request of Directors constituting a majority of the number of Directors then in office. (e) The Secretary shall give notice to each Director of any meeting of the Board of Directors except for regularly scheduled meetings at least twenty-four hours before the meeting. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Any and all business may be transacted at any meeting of the Board of Directors. No notice of any adjourned meeting need by given. No notice to or waiver by any Director shall be required with respect to any meeting at which the Director is present. SECTION 5. QUORUM AND ACTION. At any meeting of the Board of Directors, one-third of the entire Board of Directors, but in no event less than two Directors, shall constitute a quorum for the transaction of business; but if there shall be less than a quorum at any meeting of the Board, a majority of those present may adjourn the meeting from time to time. Unless otherwise provided by the laws of Delaware, the Certificate of Incorporation or these Bylaws, the act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 6. PRESIDING OFFICER AND SECRETARY OF MEETING. The Chairman or, in his absence, a member of the Board of Directors selected by the members present, shall preside at meetings of the Board. The Secretary shall act as secretary of the meeting, but in his or her absence the presiding officers shall appoint a secretary of the meeting. SECTION 7. ACTION BY CONSENT WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the records of the Board or committee. SECTION 8. COMMITTEES. The Board of Directors may appoint from among its members such committees of one or more Directors as it may from time to time deem desirable, and may delegate to such committees such powers of the Board as it may consider appropriate. SECTION 9. COMPENSATION OF DIRECTORS. Directors shall receive such reasonable compensation for their service on the Board of Directors or any committees thereof, whether in the form of retainer or a fixed fee for attendance at meetings, or both, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any Director from serving in any other capacity and receiving compensation therefor. 7 ARTICLE III OFFICERS SECTION 1. EXECUTIVE OFFICERS OF THE CORPORATION. The Board of Directors shall elect a Chairman of the Board, a President, a Secretary and a Treasurer and, in its discretion, such number of Vice Presidents and such other executive officers as the Board may from time to time determine, none of whom need be a member of the Board except the Chairman of the Board. Any number of offices may be held by the same person. SECTION 2. ADDITIONAL OFFICERS. The Board of Directors may appoint additional Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. SECTION 3. TERM, REMOVAL AND VACANCIES. The officers of the Corporation shall hold office until their respective successors are chosen and qualify. Any officer may resign his or her office at any time upon written notice to the Corporation. Any officer elected or appointed by the Board of Directors may be removed with or without cause at any time by the affirmative vote of the Board of Directors, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors. SECTION 4. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. ARTICLE IV CAPITAL STOCK SECTION 1. STOCK CERTIFICATES. (a) Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares owned by him. (b) Any or all of the signatures of the officers of the Corporation may be facsimiles and, if permitted by Delaware law, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with 8 the same effect as if he were such officer, transfer agent or registrar at the date of issue. (c) Certificates of stock shall be issued in such form not inconsistent with the Certificate of Incorporation as shall be approved by the Board of Directors. They shall be numbered and registered in the order in which they are issued. No certificate shall be issued until fully paid. SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Certificates representing shares of the stock of the Corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed in such manner an don such terms and conditions as the Board of Directors from time to time may authorize. ARTICLE V SECURITIES HELD BY THE CORPORATION SECTION 1. VOTING. Unless the Board of Directors shall otherwise order, the Chairman, the President, any Vice President or the Treasurer shall have full power and authority on behalf of the Corporation to attend, act and vote at any meeting of the stockholders of any corporation in which the Corporation may hold stock and at such meeting to exercise any or all rights and powers incident to the ownership of such stock, and to execute on behalf of the Corporation a proxy or proxies empowering another or others to act as aforesaid. The Board of Directors from time to time may confer like powers upon any other person or persons. Section 2. GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD BY THE CORPORATION. (a) Any of the following officers, to-wit: the Chairman, the President , any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Corporation shall be and are hereby authorized and empowered to transfer, convert, endorse, sell, assign, set over and deliver any and all shares of stock, bonds, debentures, notes, subscription warrants, stock purchase warrants, evidences of indebtedness, or other securities now or hereafter standing in the name of or owned by the Corporation, and to make, execute and deliver under the seal of the Corporation any and all written instruments of assignments and transfer necessary or proper to effectuate the authority hereby conferred. (b) Whenever there shall be annexed to any instrument of assignment and transfer executed, pursuant to and in accordance with the foregoing paragraph (a), a certificate of the Secretary or an Assistant Secretary of the Corporation in office at the date of such certificate setting forth the provisions hereof and stating that they are in full force and effect and setting forth the names of persons who are then officers of the Corporation, then all persons to who such instrument and annexed certificate shall thereafter be entitled, without further inquiry or investigation and regardless of the date of such certificate, to assume and to act in reliance upon the assumption that the shares of stock or other securities named in such instrument were theretofore duly and properly transferred, endorsed, 9 sold, assigned, set over and delivered by the Corporation, and that with respect to such securities the authority of these provisions of the Bylaws and of such officers is still in full force and effect. ARTICLE VI INDEMNIFICATION SECTION 1. INDEMNIFICATION; CLAIMS OTHER THAN IN THE RIGHT OF CORPORATION. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended (but in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a Director or officer of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against expenses (including attorneys' fees), judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action proceeding, had reasonable cause to believe that his conduct was unlawful. Provided, however, except as provided in Section 6 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such person in connection with a proceeding (or any part thereof) initiated by such person only if such proceeding (or any part thereof) was authorized by the Board of Directors. SECTION 2. INDEMNIFICATION; CLAIMS IN THE RIGHT OF CORPORATION. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended (but in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a Director or officer of another corporation partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against expenses (including attorneys' fees) reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best inerests of the Corporation 10 and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. EXPENSES. To the extent that a Director or officer of the Corporation has been successful on the merits, or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. If a Director or officer is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding not only in his capacity as a Director or officer, but also in his capacity as a shareholder or in any other capacity, and there is no convenient way to separate out expenses incurred in such separate capacities, all of such expenses shall be indemnified against by the Corporation. SECTION 4. AUTHORIZATION. Any indemnification under Sections 1 and 2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon determination that indemnification of the Director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (1) by a majority vote of the Directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such Directors, or if such Directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 5. RIGHT TO ADVANCEMENT OF EXPENSES. The right to indemnification conferred in Article VI shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a Director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article or otherwise. SECTION 6. RIGHT OF INDEMNITEE TO BRING SUIT. The rights to indemnification and to the advancement of expenses conferred in Article VI shall be contract rights. If a claim hereunder is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit 11 brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid the expense of prosecuting or defending such suit. In (a) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI or otherwise shall be on the Corporation. SECTION 7. APPLICABILITY. In the event of any amendment or repeal of this Article VI, the persons entitled to indemnification hereunder nevertheless shall be entitled to its benefits as to any act or events which occurred during the period during which it was in effect. All rights provided by this Article VI shall inure to the benefit of the heirs, executors or administrators of any person entitled to indemnification hereunder. The foregoing right of indemnification shall exist whether or not such person continues to be a Director or officer at such time any expenses, judgments, and fines are incurred or any claims or liabilities arise or any settlement is effected and, whether the act or omission upon which such claims or liabilities are or are alleged to be based on occurred prior to or subsequent to the adoption of this Article VI. SECTION 8. NON-EXCLUSIVITY. The indemnification and rights to advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled to under any By-Law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 9. INSURANCE. The Corporation shall have power to purchase and maintain insurance at its expense on behalf of any person who is or was a Director or officer of the Corporation, or is or was serving at the request of the Corporation as a Director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to 12 indemnify him against such liability under the provisions of this Article. SECTION 10. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VI with respect to the indemnification and advancement of expenses of Directors and officers of the Corporation. ARTICLE VII MISCELLANEOUS SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. SECTION 2. SEAL. The Corporation may, but need not, have a corporate seal, which seal shall have inscribed thereon the name of the Corporation, and shall be in such form as may be approved from time to time by the Board of Directors. SECTION 3. WAIVER OF OR DISPENSING WITH NOTICE. Whenever any notice of the time, place or purpose of any meeting of the stockholders, Directors or a committee is required to be given under the laws of Delaware, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the holding thereof, or actual attendance at the meeting in person, or in the case of the stockholders, by his attorney-in-fact, shall be deemed equivalent to the giving of such notice to such persons. Neither the business to be transacted nor the purpose of any regular or special meeting of the stockholders, Directors or members of a committee of Directors need be specified in any written waiver of notice. SECTION 4. AMENDMENT OF BYLAWS. These Bylaws, or any of them, may from time to time be supplemented, amended or repealed by the Board of Directors, but the stockholders may make additional by-laws and may alter and repeal any by-laws whether adopted by them or otherwise. Adopted by the Board of Directors on __________________, 1996. EX-10 3 1ST MOD OF REVOLVING CREDIT LOAN & SECURITY AGR 1 FIRST MODIFICATION OF AMENDED AND RESTATED REVOLVING CREDIT LOAN AND SECURITY AGREEMENT This First Modification of Amended and Restated Revolving Credit Loan and Security Agreement (this "First Modification") dated as of September 26, 1996 (the "Effective Date"), amends the Amended and Restated Revolving Credit Loan and Security Agreement dated as of July 10, 1996, by and among DIXON TICONDEROGA COMPANY, a Delaware corporation ("DTC"), and DIXON TICONDEROGA INC., an Ontario corporation ("DTI"; DTC and DTI, are collectively referred to hereinafter as the "Borrower"), the Lenders named therein and FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation ("FUCC"), as Agent for the Lenders (in its capacity as Agent, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower has entered into an Amended and Restated Revolving Credit Loan and Security Agreement, dated as of July 10, 1996 (said Agreement, as it may be further amended, restated or otherwise modified from time to time, being hereinafter called the "Revolving Credit Agreement"), pursuant to which the Lenders extended financial accommodations to Borrower in the form of a $40,000,000 revolving line of credit and letter of credit facility in accordance with, and subject to, the terms and conditions of the Revolving Credit Agreement; and WHEREAS, the Borrower has entered into a Term Loan Agreement, dated as of July 10, 1996 (said Agreement, as it may be amended, restated or otherwise modified from time to time, being herein- after called the "Term Loan Agreement"; and, together with the Revolving Credit Agreement, being hereinafter called the "Loan Agreements"), pursuant to which the Lenders extended a term loan to Borrower in the original principal amount of $7,750,000.08; and WHEREAS, the Borrower has requested the Lenders to consent to the issuance by DTC of its 12% Senior Subordinated Notes due 2003 in the aggregate principal amount of $16,500,000; and WHEREAS, the Lenders are willing to give such consent only if the Borrower agrees to certain modification of the Loan Agreements, as set forth herein. NOW, THEREFORE, in consideration of the premises and the covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1: Defined Terms. Capitalized terms used in this First Modification and not otherwise defined herein, shall have the meanings ascribed to them in the Revolving Credit Agreement. SECTION 2: Definitions. (a) Section 1 (Definitions) of the Revolving Credit Agreement is amended to add the following new definitions in their alphabetical order: 2 "Guarantor" shall mean each of Dixon Europe, Limited, a United Kingdom company, Bryn Mawr Ocean Resorts, Inc., a Florida corporation, Dixon Ticonderoga Company de Mexico, S.A. de C.V., a Mexican corporation, and Ticonderoga Graphite Inc., a New York corporation, each of which is executing and delivering a Guaranty to the Agent and the Lenders, and each existing or future other Subsidiary which executes and delivers a Guaranty to the Agent and the Lenders. "Guaranty" shall collectively mean each agreement made in favor of the Agent and the Lenders by a Guarantor in the form attached hereto as Exhibit R. (b) Section 1 (Definitions) of the Revolving Credit Agreement is amended by amending the following definitions to read in their entirety as follows: "Change of Control" shall mean (a) the acquisition after the date hereof by any Person or related group for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (a "Group"), together with any Affiliates thereof, of 30% or more of the voting stock of the Borrower, or (b) the success by any Person or Group, together with any Affiliates thereof, in having its or their nominees elected to the Board of Directors of the Borrower such that such nominees, when added to any director remaining on the Board of Directors of the Borrower who is an Affiliate of or related Person to such Person or Group, shall constitute a majority of the Board of Directors of the Borrower. "Subordinated Debt" shall mean the 12% Senior Subordinated Notes of DTC due 2003 in the original principal amount of $16,500,000 issued pursuant to the Subordinated Debt Documents. "Subordinated Debt Documents" shall mean the Note and Warrant Purchase Agreement dated as of September 26, 1996, between DTC and the Subordinated Lenders, the Subordinated Notes issued pursuant thereto, and all other documents evidencing, securing or otherwise related to the Subordinated Debt, together with any restatements, amendments, modifications and supplements thereto, and any renewals or extensions thereof, in whole or in part. "Subordinated Lenders" shall mean the holders from time to time of the Subordinated Debt. SECTION 3: Additional Guaranties. Simultaneously with the execution and delivery of this First Modification, each of the Guarantors is executing and delivering to the Agent a Guaranty. SECTION 4: Amendment of Covenants. (a) Amendment of Affirmative Covenants. The following sections of the Revolving Credit Agreement are amended as follows: 1. Section 7.3(b) is amended by deleting the words "Within forty-five (45) days" at the beginning of such section and replacing such words with the following: "Not later than the earlier to occur of (i) the fiftieth (50th) day", and by adding in the second line thereof after the comma and before the word "beginning" the following: "and (ii) the date of the filing thereof with the Securities and Exchange Commission". 3 2. Section 7.3(c) is amended by deleting the words "Within ninety (90) days" at the beginning of such section and replacing such words with the following: "Not later than the earlier to occur of (i) the one hundred and fifth (105th) day", and by adding in the second line thereof after the comma and before the word "Beginning" the following: "and (ii) the date of the filing thereof with the Securities and Exchange Commission". 3. Section 7.3(i) of the Revolving Credit Agreement is amended by deleting the last word ("and") thereof. 4. Section 7.3(j) is renumbered as 7.3(l). 5. New Sections 7.3(j) and (k) of the Revolving Credit Agreement are added to read as follows: (j) concurrently with the delivery thereof to other lenders or security holders of Dixon-Mexico, quarterly and annual balance sheets of Dixon-Mexico and the related statements of income, stockholders" equity and (annually) cash flows of Dixon-Mexico for such period, all meeting substantially the same criteria as set forth in subparagraphs (a) and (b) of this Section 7.3; (k) Immediately upon delivery to each holder of Subordinated Debt, copies of any legal or fairness opinions, officers" certificates and other notifications required to be delivered pursuant to the Subordinated Debt Loan Documents; and (b) Amendment of Financial Covenants. The following sections of the Revolving Credit Agreement are amended in their entirety to read as follows: 8.8 Subordinated Debt. (i) Permit the Subordinated Debt at any time to exceed Sixteen Million Five Hundred Thousand U.S. Dollars ($16,500,000), (ii) agree to any amendment of Sections 9.1, 10.1(b), (c), (d) or (i), 10.2(f) or (j), 10.8 or 13 of the Subordinated Debt Loan Documents, (iii) agree to any amendment of the Subordinated Debt Loan Documents that would (X) have the effect of amending, eliminating, shortening, narrowing the scope of or restricting the operation of the 45-day "standstill" provision in clause (B) following subdivision (i) of Section 11, or (Y) result in the occurrence of an "Event of Default" or a "Potential Event of Default" (as such terms are defined in the Subordinated Debt Loan Documents) at the time such amendment takes effect, (iv) make any payments of the Subordinated Debt prior to the scheduled repayment dates or maturity date for such payments, or (v) agree to any other amendment of the Subordinated Debt Loan Documents (such other amendment being herein called a "Sub Debt Amendment") unless (A) at least fifteen (15) Business Days prior to such Sub Debt Amendment taking effect, the Borrower gives written notice thereof to the Agent, which notice shall contain the full text of the Sub Debt Amendment, and (B) during such 15-day period, the Borrower negotiates in good faith with the Agent and the Lenders to amend the Credit Agreement to include changed or additional provisions thereto which are at least as onerous to the Borrower as any such Sub Debt Amendment; provided, however, that if no such amendment of the Credit Agreement is agreed to during such 15-day period and if any such Sub Debt Amendment either (i) amends a covenant or an Event of Default which is more onerous to the Borrower than a counterpart covenant or Event of Default in the Credit Agreement or (ii) adds a new covenant or event of default to any of the Subordinated Debt Loan Documents which 4 is not contained in the Credit Agreement, the Credit Agreement shall be deemed to have been amended so as to include the more onerous or new provision(s). 8.9 Tangible Net Worth. Permit Tangible Net Worth to be less than the amounts shown below at the dates set forth below: DATE AMOUNT Effective Date through May 31, 1997 $13,000,000 June 1, 1997 through September 30, 1998 14,000,000 October 1, 1998 through September 30, 1999 16,500,000 October 1, 1999 and thereafter 18,500,000 8.10 Current Ratio. Permit the ratio of Current Assets to Current Liabilities (including the Revolving Credit Loans) to be less than 1.25 to 1.00 at any time. 8.11 Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter, permit the ratio of EBITDA to Fixed Charges for the twelve (12) months immediately preceding such date to be less than the ratio show below for the period corresponding thereto: QUARTER ENDED IN PERIOD RATIO Effective date to September 29, 1997 0.80 to 1.0 September 30, 1997 and thereafter 1.10 to 1.0 8.12 Senior Fixed Charge Coverage Ratio. The existing covenant is deleted and replaced with the following: 8.12 Interest and Dividend Coverage. The Borrower will not at any time permit the Consolidated Interest and Dividend Coverage Ratio to be less than the ratio shown below for the period corresponding thereto: QUARTER ENDED IN PERIOD RATIO Effective date to September 30, 1996 1.75 to 1.0 October 1, 1996 through September 30, 1997 1.90 to 1.0 October 1, 1997 through September 30, 1998 2.30 to 1.0 October 1, 1998 and thereafter 2.55 to 1.0. Solely for purposes of this Section 12, the following capitalized terms shall have the following respective meanings: Adjusted EBIT: for any Reference Period, Consolidated Net Income before dividends, (a) adjusted by adding thereto (i) Consolidated Interest Expense, (ii) "minority interests" related to Dixon-Mexico, and (iii) income taxes, all to the extent deducted in arriving at the calculation of Consolidated Net Income for such Reference Period; (b) further adjusted by excluding therefrom all extraordinary 5 gains and losses and all other extraordinary or non-recurring items (in each case as determined in accordance with GAAP); and (c) further adjusted by deducting therefrom Minority EBIT for such Reference Period. Consolidated Interest and Dividend Coverage Ratio: for any Reference Period, the ratio of (a) Adjusted EBIT for such Reference Period to (b) the sum of (i) Consolidated Interest Expense for such Reference Period, plus (ii) capitalized interest for such Reference Period, plus (iii) all cash dividends accrued or paid on capital stock of the Borrower during such Reference Period. Consolidated Interest Expense: for any Reference Period, Interest Expense of the Borrower and its consolidated Subsidiaries for such Reference Period. Consolidated Net Income: for any Reference Period, (a) the net income (or deficit) of the Borrower and its Subsidiaries for such period (taken as a cumulative whole), after deducting all operating expenses, provisions for all taxes and reserves and all other proper deductions, all determined in accordance with GAAP, less (b) the net income (or deficit) of any Subsidiary that is less than wholly-owned (other than Dixon-Mexico). Interest Expense: as applied to any Person with reference to any period, interest expense of such Person for such period, including amortization of debt discount and expense and imputed interest on Capital Lease Obligations properly chargeable to income during such period in accordance with GAAP. Minority EBIT: for any Reference Period, the product of (a) the ownership percentage of all Persons, other than the Borrower and any Subsidiary, of the outstanding shares of Dixon-Mexico times (b) the net income (or deficit) of Dixon-Mexico for such Reference Period (taken as a cumulative whole), after deducting all operating expenses, provisions for all taxes and reserves and all other proper deductions, all determined in accordance with GAAP, (i) adjusted by adding thereto Interest Expense and income taxes deducted in the calculation of the net income of Dixon-Mexico for such Reference Period, and (ii) further adjusted by excluding therefrom all extraordinary gains and losses and all other extraordinary or non-recurring items (in each case as determined in accordance with GAAP), provided, that all items under clause (b) above shall be determined in accordance with United States GAAP and shall be denominated in U.S. dollars. Reference Period: as of any date of determination, the four (4) consecutive full fiscal quarters ended most recently prior to such date. 8.13 Ratio of EBIT to Interest on Indebtedness. As of the last day of each fiscal quarter, permit the ratio of EBIT to interest payable on Indebtedness for the twelve (12) months immediately preceding such date to be less than the ratio shown below during the period corresponding thereto: 6 QUARTER ENDED IN PERIOD RATIO Effective date to September 29, 1997 1.80 to 1.0 September 30, 1997 to September 29, 1998 2.00 to 1.0 September 30, 1998 and thereafter 2.25 to 1.0 8.14 Ratio of EBIT to Senior Debt Interest. [The existing covenant is deleted.] 8.15 Quick Ratio. [The existing covenant is deleted.] 8.16 Debt-to-Equity Ratio. Permit the ratio of Total Liabilities to Tangible Net Worth to be more than the ratio show below at the dates corresponding thereto:. DATE RATIO September 30, 1996 4.40 to 1.0 September 30, 1997 3.75 to 1.0 September 30, 1998 3.00 to 1.0 September 30, 1999 and thereafter 2.75 to 1.0 8.21 Funded Debt Limitation. Permit total Funded Debt at any time to exceed: (A) in the case of the Borrower, the sum of (i) all Obligations then outstanding, (ii) all Subordinated Debt then outstanding, (iii) all other Funded Debt outstanding on September 25, 1996 as reflected on Debt Schedule B-2 attached to the Subordinated Debt Loan Documents, and (iv) $3,100,000; and (B) in the case of Dixon-Mexico, an aggregate of $3,000,000, provided that for purposes of this clause (B) only, references to the Borrower in the definition of "Funded Debt" shall be deemed references to Dixon-Mexico. SECTION 5: Ratification; Effect on Term Loan Agreement. Except as modified hereby, the terms and conditions of the Loan Agreements and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed in all respects. To the extent that any of the amendments of the Revolving Credit Agreement contained in this First Modification are amendments of provisions which are incorporated by reference in the Term Loan Agreement, the Term Loan Agreement shall be deemed to be similarly amended. SECTION 6: Representations and Warranties. The Borrower represents warrants to, and agrees with, the Agent and the Lenders and for the benefit of First Union that (i) it has no defenses, set-offs, or counterclaims of any kind or nature whatsoever against the Agent, the Lenders or First Union with respect to the Obligations, any of the agreements among the parties hereto, including, without limitation, the obligations of the Borrower under the Loan Agreements, the Notes, this First Modification or any other Loan Document, or any action previously taken or not taken by the Agent or any Lender with respect thereto or with respect to any Lien or Collateral in connection therewith to secure the Obligations, and (ii) this First Modification has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed by a duly authorized officer of each entity comprising the Borrower, and constitutes the valid and binding obligation of the Borrower, enforceable against each entity comprising the Borrower in accordance with the terms hereof. 7 SECTION 7: Loan Agreement Representations and Warranties. The last sentence of Section 6.1 of the Revolving Credit Agreement is amended to read as follows: None of the entities which collectively constitute the Borrower has any Subsidiaries, except for DTC, which has DTI, Dixon-U.K. and the Guarantors as its only directly-owned Subsidiaries, and Dixon-Mexico which is a Subsidiary of DTI. The Borrower hereby certifies that the representations and warranties contained in the Loan Agreements, as amended herein, continue to be true and correct and that no Event of Default, or event which with the passage of time or the giving of notice, or both, would constitute an Event of Default has occurred. SECTION 8: Conditions Precedent to Effectiveness of Modification. It shall be a condition precedent to the effectiveness of this First Modification that the Borrower shall have complied with each of the following: (a) Guaranties. Each Guarantor shall have executed and delivered a counterpart original of the Guaranty to the Agent. (b) Certificates of Secretaries of the Borrower and Guarantors. The Agent shall have received a certificate of the Secretary or an Assistant Secretary of each entity comprising the Borrower and of each Guarantor, certifying (a) with respect to each such Guarantor, that attached thereto is a true and complete copy of (i) the Bylaws for such Guarantor as in effect on the date of such certification and (ii) resolutions adopted by the Board of Directors and sole shareholder of such Guarantor authorizing the execution, delivery and performance by such Guarantor of the Guaranty and the other Loan Documents to which such Guarantor is a party; (b) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of each entity comprising the Borrower authorizing the execution, delivery and performance of this First Modification by such entity; and (c) as to the incumbency and genuineness of the signature of each officer of the Borrower and each Guarantor executing this First Modification, each Guaranty and each of the other Loan Documents, as the case may be. (c) Articles of Incorporation. The Agent shall have received copies of the Articles of Incorporation for each Guarantor, and all amendments thereto, each certified by the Secretary of State of such Guarantor's jurisdiction of incorporation. (d) Certificates of Status. The Agent shall have received good standing certificates for each of the Guarantors attesting to each guarantor's good standing under the laws of the jurisdiction of its incorporation and of each other jurisdiction where a Guarantor is authorized to transact business. (e) Certificates of Guarantors. The Agent shall have received a certificate from each Guarantor, signed by the Chief Executive Officer and Secretary of each Guarantor, in form and substance satisfactory to the Agent and its special counsel, to the effect that all representations and warranties of the such Guarantor contained in its Guaranty are true, correct and complete as of the Effective Date; that such Guarantor is not in violation of any of the covenants contained in its Guaranty. 8 (f) Certificate of Borrower. The Agent shall have received a certificate from each entity comprising the Borrower, signed by the Chief Executive Officer and Secretary of such entity, in form and substance satisfactory to the Agent and its special counsel, to the effect that all representations and warranties of the Borrower contained in this First Modification are true, correct and complete as of the Effective Date; that the Borrower is not in violation of any of the covenants contained in any of the Loan Documents to which it is a party; that, giving effect to the transactions contemplated by this First Modification, no Event of Default or any event or condition which with notice, lapse of time, or both would constitute such an Event of Default, has occurred and is continuing; and that the Borrower has satisfied each of the closing conditions set forth in this Section 8. (g) Opinion of Counsel to the Borrower. The Agent shall have received the opinion of counsel for the Borrower dated the Effective Date, as to the transactions contemplated by this First Modification, in form and substance satisfactory to the Agent and its special counsel. SECTION 9: Payment of Expenses. Borrower agrees to pay, upon receipt of an invoice therefor, all fees and expenses of separate legal counsel for the Agent and the Lenders in connection with the preparation, negotiation or execution of this First Modification. SECTION 10: Counterparts. This First Modification may be executed in any number of counterparts which, when taken together, shall constitute one original. SECTION 11: Governing Law; Severability. This First Modification shall be governed by, and construed and interpreted in accordance with, the law of the State of Florida. Wherever possible, each provision of this First Modification shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this First Modification shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this First Modification. SECTION 12: WAIVER OF TRIAL BY JURY. Each of the Borrower, the Agent and the Lenders hereby knowingly, voluntarily, irrevocably and intentionally waives the right it may have to a trial by jury in respect to any action, proceeding, counterclaim or other litigation based hereon, or arising out of, under or in connection with this First Modification, the Loan Agree- ments or any other Loan Document, or any course of conduct, course of dealing, statements (whether oral or written) or actions of any party hereto. This provision is a material inducement of the parties to enter into this First Modification. SECTION 13: Titles. The section titles contained in this First Modification are and shall be without substantive meaning or content of any kind whatsoever and are not part of this First Modification. IN WITNESS WHEREOF, the parties hereto have caused this First Modification to be executed as of the date first above written. BORROWER: DIXON TICONDEROGA COMPANY, a Delaware corporation By: /s/ Gino N. Pala ------------------------------ Gino N. Pala, President and CEO 9 DIXON TICONDEROGA INC., an Ontario corporation By: /s/ Gino N. Pala ------------------------------ Gino N. Pala, President and CEO AGENT: FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation, as Agent By: /s/ Roanne Disalvatore ---------------------------------- Roanne Disalvatore, Vice President LENDERS: FIRST UNION COMMERCIAL CORPORATION, a North Carolina corporation, as Agent By: /s/ Roanne Disalvatore -------------------------------- Roanne Disalvatore, Vice President THE FIRST NATIONAL BANK OF BOSTON, a national banking association By: /s/ Katherine S. Steiger --------------------------------- Katherine S. Steiger, Vice President NATIONAL BANK OF CANADA, a Canadian chartered bank By: /s/ Jean Page --------------------------------- Jean Page, Vice President EX-10 4 NOTE AND WARRANT PURCHASE AGR ========================================================================= DIXON TICONDEROGA COMPANY $16,500,000 12.00% Senior Subordinated Notes due 2003 ---------------------- NOTE AND WARRANT PURCHASE AGREEMENT ---------------------- Dated as of September 26, 1996 ========================================================================= i TABLE OF CONTENTS 1. Authorization of Notes and Warrants. . . . . . . . . . . . .1 2. Sale and Purchase of Notes and Warrants. . . . . . . . . . .1 3. Closing; Fees. . . . . . . . . . . . . . . . . . . . . . . .1 3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . .1 3.2. Transaction Fees. . . . . . . . . . . . . . . . . . . . .2 3.3. Legal Fees. . . . . . . . . . . . . . . . . . . . . . . .2 4. Conditions to Closing. . . . . . . . . . . . . . . . . . . .2 4.1. Representations and Warranties. . . . . . . . . . . . . .2 4.2. Performance; No Default . . . . . . . . . . . . . . . . .2 4.3. Compliance Certificate. . . . . . . . . . . . . . . . . .2 4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . .3 4.5. Guaranties. . . . . . . . . . . . . . . . . . . . . . . .3 4.6. Credit Agreement. . . . . . . . . . . . . . . . . . . . .3 4.7. Satisfaction of Company Obligations . . . . . . . . . . .3 4.8. Consents, Agreements. . . . . . . . . . . . . . . . . . .3 4.9. Compliance with Securities Laws . . . . . . . . . . . . .3 4.10. No Adverse U.S. Legislation, Action or Decision, etc.. . . . . . . . . . . . . . . . . . . . . .4 4.11. No Actions Pending. . . . . . . . . . . . . . . . . . . .4 4.12. Purchase Permitted By Applicable Law, etc . . . . . . . .4 4.13. Proceedings and Documents . . . . . . . . . . . . . . . .4 4.14. Sale of Other Notes . . . . . . . . . . . . . . . . . . .4 4.15. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . .4 5. Representations and Warranties, etc. . . . . . . . . . . . .4 5.1. Organization, Standing, etc . . . . . . . . . . . . . . .4 5.2. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . .5 5.3. Qualification . . . . . . . . . . . . . . . . . . . . . .5 5.4. Business; Financial Statements. . . . . . . . . . . . . .5 5.5. Changes, etc. . . . . . . . . . . . . . . . . . . . . . .6 5.6. Tax Returns and Payments. . . . . . . . . . . . . . . . .6 5.7. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . .6 5.8. Capital Stock and Related Matters . . . . . . . . . . . .6 5.9. Title to Properties; Liens. . . . . . . . . . . . . . . .7 5.10. Litigation, etc . . . . . . . . . . . . . . . . . . . . .7 5.11. Compliance with Other Instruments, etc. . . . . . . . . .7 5.12. Governmental Consent. . . . . . . . . . . . . . . . . . .8 5.13. Patents, Trademarks, Authorizations, etc. . . . . . . . .8 5.14. Offer of Notes. . . . . . . . . . . . . . . . . . . . . .8 5.15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . .8 5.16. Federal Reserve Regulations . . . . . . . . . . . . . . .8 5.17. Environmental Matters . . . . . . . . . . . . . . . . . .8 5.18. Status Under Certain Federal Statutes . . . . . . . . . .9 5.19. Foreign Assets Control Regulations, etc . . . . . . . . 10 5.20. Compliance with ERISA . . . . . . . . . . . . . . . . . 10 5.21. Certain Fees. . . . . . . . . . . . . . . . . . . . . . 11 5.22. Disclosure. . . . . . . . . . . . . . . . . . . . . . . 11 6. Purchase Intent; Source of Funds . . . . . . . . . . . . . 11 6.1. Purchase Intent . . . . . . . . . . . . . . . . . . . . 11 6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . 12 ii 7. Accounting; Financial Statements and Other Information. . . . . . . . . . . . . . . . . . . . . . . . 12 8. Inspection; Confidentiality. . . . . . . . . . . . . . . . 15 8.1. Inspection. . . . . . . . . . . . . . . . . . . . . . . 15 8.2. Confidentiality . . . . . . . . . . . . . . . . . . . . 15 9. Prepayment of Notes. . . . . . . . . . . . . . . . . . . . 15 9.1. Required Prepayments. . . . . . . . . . . . . . . . . . 15 9.2. Optional Prepayments with Premium . . . . . . . . . . . 15 9.3. Optional Prepayment upon Public Offering. . . . . . . . 16 9.4. Contingent Prepayments Upon Change of Control . . . . . 16 9.5. Contingent Prepayment Upon Sale of Certain Assets. . . . . . . . . . . . . . . . . . . . . . . . . 16 9.6. Notice of Optional Prepayments; Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . 17 9.7. Allocation of Partial Prepayments . . . . . . . . . . . 17 9.8. Maturity; Surrender, etc. . . . . . . . . . . . . . . . 17 9.9. Acquisition of Notes. . . . . . . . . . . . . . . . . . 17 10. Business and Financial Covenants . . . . . . . . . . . . . 17 10.1. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 18 10.2. Liens, etc. . . . . . . . . . . . . . . . . . . . . . . 20 10.3. Investments, Guaranties, etc. . . . . . . . . . . . . . 21 10.4. Restricted Payments and Restricted Investments. . . . . 23 10.5. Minimum Net Worth . . . . . . . . . . . . . . . . . . . 24 10.6. Interest and Dividend Coverage. . . . . . . . . . . . . 24 10.7. Transactions with Affiliates. . . . . . . . . . . . . . 25 10.8. Consolidation, Merger, Sale of Assets, etc. . . . . . . 25 10.9. Subsidiary Stock and Indebtedness . . . . . . . . . . . 27 10.10. Corporate Existence, etc.; Business . . . . . . . . . . 28 10.11. Payment of Taxes and Claims . . . . . . . . . . . . . . 28 10.12. Compliance with ERISA . . . . . . . . . . . . . . . . . 28 10.13. Maintenance of Properties; Insurance. . . . . . . . . . 29 10.14. Additional Guaranties . . . . . . . . . . . . . . . . . 30 10.15. Restrictions Affecting Subsidiaries . . . . . . . . . . 30 10.16. Amendment of Credit Agreement . . . . . . . . . . . . . 31 11. Events of Default; Acceleration. . . . . . . . . . . . . . 31 12. Remedies on Default, etc.. . . . . . . . . . . . . . . . . 33 13. Subordination of Subordinated Notes. . . . . . . . . . . . 33 13.1. General. . . . . . . . . . . . . . . . . . . . . . . . . 33 13.2. Superior Debt. . . . . . . . . . . . . . . . . . . . . . 33 13.3. Default in Respect of Superior Debt. . . . . . . . . . . 34 13.4. Insolvency, etc. . . . . . . . . . . . . . . . . . . . . 34 13.5. Payments and Distributions Received. . . . . . . . . . . 35 13.6. No Prejudice or Impairment . . . . . . . . . . . . . . . 35 13.7. Payment of Superior Debt, Subrogation, etc . . . . . . . 36 14. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 36 iii 15. Registration, Transfer and Substitution of Notes; Action by Noteholders. . . . . . . . . . . . . . . . . . . 45 15.1. Note Register; Ownership of Notes. . . . . . . . . . . . 45 15.2. Transfer and Exchange of Notes . . . . . . . . . . . . . 45 15.3. Replacement of Notes . . . . . . . . . . . . . . . . . . 45 15.4. Notes held by Company, etc., Deemed Not Outstanding. . . . . . . . . . . . . . . . . . . . . . . 45 16. Payments on Notes. . . . . . . . . . . . . . . . . . . . . 45 16.1. Place of Payment . . . . . . . . . . . . . . . . . . . . 45 16.2. Home Office Payment. . . . . . . . . . . . . . . . . . . 46 17. Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . 46 18. Survival of Representations and Warranties . . . . . . . . 47 19. Amendments and Waivers . . . . . . . . . . . . . . . . . . 47 20. Notices, etc . . . . . . . . . . . . . . . . . . . . . . . 47 21. Submission to Jurisdiction . . . . . . . . . . . . . . . . 48 22. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 48 SCHEDULE A. . . . . . . . . . . . . . Delivered to Purchasers Only SCHEDULE B. . . . . . . . . . . . . . Delivered to Purhcasers Only SCHEDULE C. . . . . . . . . . . . . . Delivered to Purchasers Only EXHIBIT A . . . . . . . . . . . . . . Delivered to Purchasers Only EXHIBIT B . . . . . . . . . . . . . . . . . . . . .Form of Warrant EXHIBIT C-1 . . . . . . . . . . . . . Delviered to Purhcasers Only EXHIBIT C-2 . . . . . . . . . . . . . Delivered to Purchasers Only EXHIBIT C-3 . . . . . . . . . . . . . Delivered to Purchasers Only EXHIBIT D . . . . . . . . . . . . . . Delivered to Purchasers Only 1 Dixon Ticonderoga Company 195 International Parkway Heathrow, Florida 32746 12.00% Senior Subordinated Notes due September 26, 2003 Warrants to Purchase Common Stock Dated as of September 26, 1996 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A Ladies and Gentlemen: Dixon Ticonderoga Company, a Delaware corporation (the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES AND WARRANTS. The Company will authorize the issue and sale of (a) $16,500,000 aggregate principal amount of its 12.00% Senior Subordinated Notes due September 26, 2003 (the "Notes", such term to include any such notes issued in substitution therefor pursuant to section 15), to be substantially in the form of the Note set out in Exhibit A, with such changes therefrom, if any, as may be approved by you and the Company, and (b) warrants (the "Warrants", such term to include any warrants issued in substitution therefor pursuant to section 15) to purchase 300,000 shares of the Common Stock, par value $1.00 per share (the "Common Stock"), of the Company at an initial exercise price of $7.24 per share, to be substantially in the form of the Warrant set out in Exhibit B, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in section 14; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES AND WARRANTS. The Company will issue and sell to you and, subject to the terms and conditions of this Agreement, you will purchase from the Company, at the Closing provided for in section 3, (a) Notes in the principal amount specified opposite your name in Schedule A and (b) Warrants for the number of shares of Common Stock specified opposite your name in Schedule A; at the purchase price of 100% of the principal amount of such Notes. Contemporaneously with entering into this Agreement, the Company is entering into separate Note Agreements (the "Other Agreements") identical with this Agreement with the other purchasers named in Schedule A (the "Other Purchasers"), providing for the sale to each of the Other Purchasers, at such Closing, of Notes in the principal amount specified opposite its name in Schedule A. 3. CLOSING; FEES. 3.1. CLOSING. The sales of the Notes and the Warrants to be purchased by you shall take place at the offices of Becker, Glynn, Melamed & Muffly LLP, at 10:00 a.m., New York City time, at a closing (the "Closing") on September 26, 1996 or on such other Business Day thereafter as may be agreed upon by the Company and you. At the Closing the Company will deliver to you (a) the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in 2 denominations of at least $500,000 as shall be set forth in Schedule A or as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), and (b) the Warrants to be purchased by you in the form of a single warrant certificate (or such greater number of warrant certificates as shall be set forth in Schedule A or as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee); against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor. If at the Closing the Company shall fail to tender such Notes or such Warrants to you as provided above in this section 3, or any of the conditions specified in section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights you may have by reason of such failure or such nonfulfillment. 3.2. TRANSACTION FEES. On the date of the Closing, the Company will pay to you (or to the Person designated by you for payment in Schedule A), in immediately available funds, a transaction fee equal to 1.0% of the aggregate purchase price for the Notes and Warrants purchased by you on the Closing Date, by crediting the account specified below your name in Schedule A for the payment of transaction fees. 3.3. LEGAL FEES. On the date of the Closing, the Company will pay the reasonable fees and disbursements of your special counsel incurred in connection with the transactions contemplated by this Agreement and set forth in a statement delivered to the Company on or prior to the date of the Closing, and thereafter the Company will pay, promptly upon receipt of a supplemental statement therefor, additional reasonable fees and disbursements of your special counsel, if any, incurred in connection with such transactions. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes and Warrants to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement and those otherwise made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall be correct when made and at the time of the Closing, except as affected by the consummation of such transactions. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and at the time of the Closing no Event of Default or Potential Event of Default shall have occurred and be continuing. 4.3. COMPLIANCE CERTIFICATE. The Company shall have delivered to you an Officers' Certificate, dated the date of the Closing, certifying that the conditions specified in sections 4.1 and 4.2 have been fulfilled and demonstrating that, after giving effect to the issuance of all of the Notes and Warrants, the Company will be in compliance in all material respects with the most stringent limitations on the incurrence or maintenance of Debt contained in any instrument or agreement applicable to or binding on the Company or certifying that a 3 complete and correct copy of a waiver or waivers of compliance with such limitations is attached to such Officers' Certificate. 4.4. OPINIONS OF COUNSEL. You shall have received (a) from Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., counsel for the Company, (b) from Becker, Glynn, Melamed & Muffly LLP, your special counsel in connection with the transactions contemplated by this Agreement, and (c) from Richard F. Joyce, Esq., Executive Vice President and Chief Legal Executive of the Company, favorable opinions sub- stantially in the forms set forth in Exhibits C-1, C-2 and C-3, respectively, and covering such other matters incident to such transactions as you may reasonably request, each addressed to you, dated the date of the Closing and otherwise satisfactory in substance and form to you; and such opinions of counsel to the Company's Subsidiaries as you may reasonably request, covering matters relating to the Guaranty Agreement. 4.5. GUARANTIES. Each of the Company's Subsidiaries shall have executed and delivered to you the Guaranty Agreement, substantially in the form of Exhibit D, unconditionally and irrevocably guaranteeing to you the full and prompt payment and performance of the Company's obligations under the Notes. 4.6. CREDIT AGREEMENT. The Credit Agreement shall have been executed and delivered by the Company, First Union Commercial Corporation, as Agent, and the lenders named therein, and shall be satisfactory in form and substance to you. You shall have received a copy of the Credit Agreement, certified as a true and complete copy thereof by an officer of the Company. 4.7. SATISFACTION OF COMPANY OBLIGATIONS. All of the obligations of the Company shown on Schedule B as obligations that are required or intended to be satisfied on or prior to the Closing Date shall have been satisfied in full and all Liens securing any of such obligations shall have been released. The Company shall have received a payoff letter, reasonably satisfactory in form and substance to you, from the holder of the Company's 10.59% Senior Subordinated Notes, stating that upon the payment of the amount set forth in such letter, all of the Company's obligations with respect to such Notes will be fully and irrevocably discharged. 4.8. CONSENTS, AGREEMENTS. The Company shall have obtained all consents and waivers, under any term of any agreement or instrument to which it is a party or by which it or any of its properties is bound, or any term of any applicable law, ordinance, rule or regulation of any governmental authority, or any term of any applicable order, judgment or decree of any court, arbitrator or governmental authority, necessary or appropriate in connection with the transactions contemplated by this Agreement, and such consents and waivers shall be in full force and effect on the Closing Date. A complete and correct copy of each of such consents and waivers shall have been delivered to you. 4.9. COMPLIANCE WITH SECURITIES LAWS. The offering and sale of the Notes and Warrants to you and the Other Purchaser shall have complied with all applicable requirements of federal and state securities laws and you shall have received evidence thereof in form and substance reasonably satisfactory to you. 4 4.10. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION, ETC. No legislation shall have been enacted by either house of Congress or favorably reported by any committee thereof, no other action shall have been taken by any governmental authority, whether by order, regulation, rule, ruling or otherwise, and no decision shall have been rendered by any court of competent jurisdiction, which would materially and adversely affect the Notes or the Warrants being purchased by you hereunder. 4.11. NO ACTIONS PENDING. There shall be no suit, action, investigation, inquiry or other proceeding by any governmental body or any other Person or any other legal or administrative proceeding pending or, to the Company's knowledge, threatened which questions the validity or legality of the transactions contemplated by this Agreement or the other Operative Agreements or which seeks damages or injunctive or other equitable relief in connection therewith. 4.12. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes and Warrants (a) shall be permitted by the laws and regulations of each jurisdiction to which you are subject and (b) shall not subject you to any tax, penalty or, in your reasonable judgment, other onerous condition by reason of any change after the date of this Agreement in any applicable law or governmental regulation. If requested by you, you shall have received, at least five Business Days prior to the Closing, an Officers' Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.13. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 4.14. SALE OF OTHER NOTES. Contemporaneously with the Closing the Company shall sell to the Other Purchasers the Notes and Warrants to be purchased by them at the Closing as specified in Schedule A. 4.15. FEES. The fees required to be paid by sections 3.2 and 3.3 shall have been paid as therein provided. 5. REPRESENTATIONS AND WARRANTIES, ETC. The Company represents and warrants that: 5.1. ORGANIZATION, STANDING, ETC. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement, to issue and sell the Notes and the Warrants and to carry out the terms of this Agreement, the Notes and the Warrants. 5 5.2. SUBSIDIARIES. Schedule C correctly lists as to each Subsidiary on the date of this Agreement (a) its name, (b) the jurisdiction of its incorporation and (c) the percentage of its issued and outstanding shares owned by the Company or another Subsidiary (specifying such other Subsidiary). Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Guaranty Agreement and to carry out the terms of the Guaranty Agreement. All the outstanding shares of capital stock of each Subsidiary are validly issued, fully paid and non-assessable, and all such shares indicated in Schedule C as owned by the Company or by any other Subsidiary are so owned beneficially and of record by the Company or by such other Subsidiary free and clear of any Lien, other than Liens permitted by subdivision (f) of section 10.2. 5.3. QUALIFICATION. Each of the Company and its Subsidiaries is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure so to qualify would have a materially adverse effect on the Company. 5.4. BUSINESS; FINANCIAL STATEMENTS. The Company has delivered to you complete and correct copies of (a) its annual reports on Form 10-K for the fiscal years ended September 30, 1993 through 1995, as filed with the Securities and Exchange Commission (the "Forms 10-K") and (b) the Private Placement Memorandum. The Forms 10-K and the Private Placement Memorandum correctly describe, in all material respects, as of their respective dates, the business then conducted and proposed to be conducted by the Company. There are included in the Forms 10-K financial statements of the Company for each of the fiscal years ended September 30, 1993 through 1995, accompanied in each case by the opinion thereon of Coopers & Lybrand L.L.P., independent public accountants. The Company has also delivered to you complete and correct copies of its quarterly reports to stockholders sent or made available to stockholders, and its quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, in each case for fiscal periods subsequent to September 30, 1995, and current reports on Form 8-K, proxy statements, registration statements and prospectuses, if any, filed by the Company with the Securities and Exchange Commission since such date. All financial statements included in the foregoing materials delivered to you (except as otherwise specified therein) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods specified and present fairly the financial posi- tion of the Company and its Subsidiaries as of the respective dates specified and the results of their operations and cash flows for the respective periods specified. 6 5.5. CHANGES, ETC. Since September 30, 1995, (a) other than the ECRA Decision, there has been no change in the assets, liabilities or financial condition of the Company or any of its Subsidiaries, other than changes in the ordinary course of business which have not been, either in any case or in the aggregate, materially adverse to the Company or any of its Subsidiaries, (b) neither the business, operations or affairs nor any of the properties or assets of the Company or its Subsidiaries have been affected by any occurrence or development (whether or not insured against) which has been, either in any case or in the aggregate, materially adverse to the Company or any of its Subsidiaries and (c) the Company has not as of the date of this Agreement directly or indirectly declared, ordered, paid, made or set apart any sum or property for any Restricted Payment or agreed to do so. 5.6. TAX RETURNS AND PAYMENTS. The Company and its Subsidiaries have filed all tax returns required by law to be filed by them and have paid all taxes, assessments and other governmental charges levied upon the Company and its Subsidiaries, and any of their respective properties, assets, income or franchises which are due and payable, other than those presently payable without penalty or interest and those presently being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made. The Federal income tax liabilities of the Company and its Subsidiaries have been finally determined by the Internal Revenue Service and satisfied, or the time for audit has expired, for all fiscal periods through September 30, 1992. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state and foreign income taxes for all fiscal periods are adequate in the opinion of the Company, and the Company knows of no unpaid assessment for additional Federal, state or foreign income taxes for any period or any basis for any such assessment. 5.7. DEBT. Schedule B-1 correctly describes all secured and unsecured Debt of the Company and its Subsidiaries outstanding, or for which the Company or any of its Subsidiaries has commitments, on the date of this Agreement, and identifies the collateral securing any secured Debt. Schedule B-2 correctly describes all such Debt that, on the Closing Date and after giving effect to the transactions contemplated by this Agreement, will remain outstanding. Neither the Company nor any of its Subsidiaries is in default with respect to any Debt or any instrument or agreement relating thereto. 5.8. CAPITAL STOCK AND RELATED MATTERS. As of the Closing Date, the authorized capital stock of the Company will consist of 8,000,000 shares of Common Stock and 100,000 shares of Preferred Stock, par value $1.00 per share. On the Closing Date after giving effect to the transactions contemplated by this Agreement and the Operative Agreements, 3,293,778 shares of the Common Stock and no shares of such Preferred Stock will be issued and outstanding. The shares of Common Stock issuable upon exercise of the Warrants have been duly authorized and validly reserved for issuance upon such exercise and, when so issued, will be validly issued, fully paid and non-assessable. As of the Closing Date, the Company will not have outstanding securities convertible into or exchangeable for any shares of its capital stock, nor will it have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any 7 character relating to, any shares of its capital stock or any securities convertible into or exchangeable for any shares of its capital stock, other than (a) the Warrants and (b) options issued and to be issued to certain employees of the Company and its Subsidiaries from time to time in the manner contemplated by the Option Plan. 5.9. TITLE TO PROPERTIES; LIENS. Each of the Company and its Subsidiaries has good and sufficient title to its properties and assets, including the properties and assets reflected in the financial statements referred to in section 5.4 (except properties and assets disposed of since such date in the ordinary course of business and properties and assets held under Capital Leases referred to in Schedule B), and none of such properties or assets is subject to any Liens except such as are of the character permitted by section 10.2. The Company and its Subsidiaries enjoy peaceful and undisturbed possession under all leases necessary in any material respect for the operation of their respective properties and assets, and all such leases are valid and subsisting and are in full force and effect. Except to perfect and protect security interests of the character permitted by section 10.2, no presently effective financing statement under the Uniform Commercial Code which names the Company or any Subsidiary as debtor is on file in any jurisdiction and neither the Company nor any Subsidiary has signed any presently effective financing statement or any presently effective security agreement authorizing any secured party thereunder to file any such financing statement. 5.10. LITIGATION, ETC. Other than the ECRA Decision, there is no action, proceeding or investigation pending or threatened (or any basis therefor known to the Company) which questions the validity of this Agreement, the Notes or the Warrants or any action taken or to be taken pursuant to this Agreement, the Notes or the Warrants, or which might result, either in any case or in the aggregate, in any adverse change in the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company or any of its Subsidiaries, or in any liability on the part of the Company or any of its Subsidiaries, which would be material to the Company or any of its Subsidiaries. 5.11. COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the Company nor any of its Subsidiaries is in violation of any term of its certificate or articles of incorporation or by-laws, and neither the Company nor any of its Subsidiaries is in violation of any term of any agreement or instrument to which it is a party or by which it is bound or any term of any applicable law, ordinance, rule or regulation of any governmental authority or any term of any applicable order, judgment or decree of any court, arbitrator or governmental authority, the consequences of which violation might have a materially adverse effect on the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company or any of its Subsidiaries; the execution, delivery and performance of this Agreement, the Notes and the Warrants will not result in any violation of or be in conflict with or constitute a default under any such term or result in the creation of (or impose any obligation on the Company or any of its Subsidiaries to create) any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to any such term; and there is no such term which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company or any of its Subsidiaries. 8 5.12. GOVERNMENTAL CONSENT. No consent, approval or authorization of, or declaration or filing with, any governmental authority on the part of the Company or any of its Subsidiaries is required for the valid execution and delivery of this Agreement or the valid offer, issue, sale and delivery of the Notes or the Warrants pur- suant to this Agreement. 5.13. PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC. The Company and its Subsidiaries own or possess all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations, and all rights with respect to the foregoing, necessary for the conduct of their respective businesses as now conducted, without any known material conflict with the rights of others. 5.14. OFFER OF NOTES. Neither the Company nor Alex. Brown & Sons Incorporated (the only Person authorized or employed by the Company as financial adviser or otherwise as agent in connection with the offering or sale of the Notes or Warrants or any similar securities of the Company) has directly or indirectly offered the Notes or the Warrants or any part thereof or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, anyone other than you and not more than 30 other institutional investors. Neither the Company nor anyone acting on its behalf has taken or will take any action which would subject the issuance and sale of the Notes or the Warrants to the registration and prospectus delivery provisions of the Securities Act. 5.15. USE OF PROCEEDS. The Company will apply the proceeds of the sale of the Notes and Warrants, simultaneously with the Closing, to (a) the repayment in full of the Company's 10.59% Senior Subordinated Notes due 1999, in the principal amount of $7,025,000, plus a premium thereon equal to $355,807.43, plus accrued interest, (b) the repayment of $8,228,641.92 principal amount of the revolving credit portion of the Debt of the Company outstanding under the Credit Agreement and (c) the payment of fees and expenses incurred in connection with the offering and sale of the Notes and Warrants. 5.16. FEDERAL RESERVE REGULATIONS. The Company will not, directly or indirectly, use any of the proceeds of the sale of the Notes and Warrants for the purpose, whether immediate, incidental or ultimate, of buying a "margin stock" or of maintaining, reducing or retiring any indebtedness originally incurred to purchase a stock that is currently a "margin stock", or for any other purpose which might constitute this transaction a "purpose credit", in each case within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R. 207, as amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or otherwise take or permit to be taken any action which would involve a violation of such Regulation G or Regulation U or of Regulation T (12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board. No Debt being reduced or retired out of the proceeds of the sale of the Notes and Warrants was incurred for the purpose of purchasing or carrying any such "margin stock", and neither the Company nor any of its Subsidiaries either owns or has any present intention of acquiring any such "margin stock". 5.17. ENVIRONMENTAL MATTERS. Except as set forth in the ECRA Decision: 9 (a) Each of the Company and its Subsidiaries has complied and is in compliance with all Environmental Laws in all material respects. (b) Each of the Company and its Subsidiaries has obtained and complied with, and is in compliance with, all permits, licenses and other authorizations that are required pursuant to Environmental Laws for the occupation of its facilities and the operation of its business, without transfer, reissuance, or other governmental approval or action. (c) Neither the Company nor any of its Subsidiaries has received any written claim, complaint, citation, report or other written or oral notice regarding any liabilities or potential liabilities, including any investigatory, remedial or corrective obligations, arising under Environmental Laws. (d) No underground storage tanks or surface impoundments or asbestos-containing material in any form or condition exists at any property owned or occupied by the Company or any of its Subsidiaries. (e) Neither the Company nor any of its Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any hazardous substance, or owned or operated any facility or property, in a manner that would reasonably be expected to give rise to liabilities of the Company or any of its Subsidiaries for response costs, natural resource damages or attorneys' fees pursuant to CERCLA or other Environmental Laws. (f) No facts, events or conditions relating to the past or present facilities, properties or operations of the Company or its Subsidiaries will prevent, hinder or limit continued compliance with Environmental Laws, give rise to any investigatory, remedial or corrective obligations pursuant to Environmental Laws, or give rise to any other liabilities pursuant to Environmental Laws, including without limitation any relating to onsite or offsite Releases (as defined in CERCLA) or threatened Releases of hazardous or otherwise regulated materials, substances or wastes, personal injury, property damage or natural resources damage. (g) Neither the Company nor any of its Subsidiaries has, either expressly or by operation of law, assumed or undertaken any liability or corrective or remedial obligation of any other Person relating to Environmental Laws. 5.18. STATUS UNDER CERTAIN FEDERAL STATUTES. The Company is not (a) an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended; (c) a "public utility" as such term is defined in the Federal Power Act, as amended; or (d) a "rail carrier or a person controlled by or affiliated with a rail carrier", within the meaning of Title 49, U.S.C., or a "carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable. 10 5.19. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the issue and sale of the Notes and Warrants by the Company nor its use of the proceeds thereof as contemplated by this Agreement will violate the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Iranian Transactions Regulations, the Iraqi Sanctions Regulations, the Libyan Sanctions Regulations, or any similar foreign assets control or export control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V as amended) or the restrictions set forth in Execu- tive Orders No. 8389, 9193, 12543 (Libya), 12544 (Libya), 12801 (Libya), 12722 (Iraq) or 12724 (Iraq), as amended, of the President of the United States of America or of any rules or regulations issued thereunder. 5.20. COMPLIANCE WITH ERISA. (a) Neither the Company nor any of its Subsidiaries has breached the fiduciary rules of ERISA or engaged in any prohibited transaction in connection with which the Company or any of its Subsidiaries could be subjected to (in the case of any such breach) a suit for damages or (in the case of any such prohibited transaction) either a civil penalty assessed under section 502(i) of ERISA or a tax imposed by section 4975 of the Code, which suit, penalty or tax, in any case, would be materially adverse to the Company or any of its Subsidiaries. (b) No Plan (other than a Multiemployer Plan) or any trust created under any such Plan has been terminated since September 2, 1974. Neither the Company nor any Related Person has within the past six years contributed to a single employer plan which has at least two contributing sponsors not under common control or ceased operations at a facility in a manner which could result in liability under section 4062(f) of ERISA. No liability to the PBGC has been or is expected by the Company to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company or any Subsidiary which is or would be materially adverse to the Company or such Subsidiary. There has been no reportable event (within the meaning of section 4043(b) of ERISA) or any other event or condition with respect to any Plan (other than a Multiemployer Plan) which presents a risk of termination of any such Plan by the PBGC under circumstances which in any case could result in liability which would be materially adverse to the Company or any of its Subsidiaries. (c) Full payment has been made of all amounts which the Company or any Related Person is required under the terms of each Plan to have paid as contributions to such Plan as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). (d) The present value of all vested accrued benefits under all Plans (other than Multiemployer Plans), determined as of the end of the Company's most recently ended fiscal year on the basis of reasonable actuarial assumptions, did not exceed the current value of the assets of such Plans allocable to such vested accrued benefits by more than $1,500,000. The terms "present value", "current value", and "accrued benefit" have the meanings specified in section 3 of ERISA. 11 (e) The Company is not and has never been obligated to contribute to any "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). (f) The execution and delivery of this Agreement and the issue and sale of the Notes hereunder will not involve any transaction which is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the preceding sentence is made in reliance upon and subject to the accuracy of your representation in section 6.2 of this Agreement as to the source of the funds used to pay the purchase price of the Notes purchased by you. The Company has delivered to you, if requested by you, a complete and correct list of all employee benefit plans with respect to which the Company is a party in interest and with respect to which its securities are employer securities. As used in this section 5.20(f), the terms "employee benefit plans" and "party in interest" have the respective meanings specified in section 3 of ERISA and the term "employer securities" has the meaning specified in section 407(d)(1) of ERISA. 5.21. CERTAIN FEES. Except for the fees referred to in sec- tion 3 and except for a placement fee payable to Alex. Brown & Sons Incorporated in the amount of $577,500, no broker's or finder's fee or commission has been paid or will be payable by the Company with respect to the offer, issue and sale of the Notes or the Warrants, and the Company hereby indemnifies you against, and will hold you harmless from, any claim, demand or liability asserted against you for broker's or finder's fees alleged to have been incurred by the Company or any other Person (other than you or your affiliates) in connection with any such offer, issue and sale or any of the other transactions contemplated by this Agreement or any of the other Operative Agreements. 5.22. DISCLOSURE. Neither this Agreement, the Memorandum, the Forms 10-K nor any other document, certificate or instrument delivered to you by or on behalf of the Company in connection with the transactions contemplated by this Agreement contains (in each case, as of its date) any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in this Agreement and in such other documents, certificates or instruments not misleading. There is no fact (other than matters of a general economic or political nature which do not affect the Company uniquely) known to the Company which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, operations, affairs, condition (financial or otherwise), properties or assets of the Company which has not been set forth in this Agreement or in the other documents, certificates and instruments delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated by this Agreement. 6. PURCHASE INTENT; SOURCE OF FUNDS. 6.1. PURCHASE INTENT. You represent that you are purchasing the Notes and Warrants hereunder for your own account, not with a view to the distribution thereof or with any present intention of distributing or selling any of such Notes or Warrants except in compliance with the Securities Act and any applicable state securities laws, provided that the disposition of your property shall at all times be within your control. 12 6.2. SOURCE OF FUNDS. You represent that all or a portion of the funds to be used by you to pay the purchase price of the Notes and Warrants consists of funds which do not constitute assets of any employee benefit plan (other than a governmental plan exempt from the coverage of ERISA) and the remaining portion, if any, of such funds consists of funds which may be deemed to constitute assets of one or more specific employee benefit plans, complete and accurate information as to the identity of each of which you have delivered to the Company. As used in this sec- tion 6.2, the terms "employee benefit plan" and "government plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. 7. ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company will maintain, and will cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with generally accepted accounting principles, and will accrue, and will cause each of its Subsidiaries to accrue, all such liabilities as shall be required by generally accepted accounting principles. The Company will deliver (in duplicate) to you, so long as you shall be entitled to purchase Notes under this Agreement or you or your nominee shall be the holder of any Notes, and to each other holder of any Notes: (a) not later than the earlier to occur of (i) the fiftieth day after the end of each of the first three quarterly fiscal periods in each fiscal year of the Company and (ii) the date of the filing thereof with the Securities and Exchange Commission, (x) consolidated balance sheets of the Company and its Subsidiaries as at the end of such period and the related consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such period and (in the case of the second and third quarterly periods) for the period from the beginning of the current fiscal year to the end of such quarterly period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous fiscal year, all in reasonable detail and certified by a principal financial officer of the Company as presenting fairly, in accordance with generally accepted accounting principles (except for the absence of notes thereto) applied (except as specifically set forth therein) on a basis consistent with such prior fiscal periods, the information contained therein, subject to changes resulting from normal year-end audit adjustments, and (y) such supplemental profit and loss and balance sheet information by division and department in such detail as the holders of the Notes may request; provided that so long as the Company is subject to the reporting provisions of the Exchange Act, delivery of copies of the Company's quarterly report on Form 10-Q for such period will satisfy the requirements of this paragraph (a); (b) not later than the earlier to occur of (i) the 105th day after the end of each fiscal year of the Company and (ii) the date of the filing thereof with the Securities and Exchange Commission, (x) consolidated balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail, and accompanied by a report thereon of Coopers & Lybrand L.L.P or other 13 "Big Six" independent public accountants, which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with generally accepted accounting principles applied on a basis consistent with prior years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards, and (y) such supplemental profit and loss and balance sheet information by division and department in such detail as the holders of the Notes may request; provided that so long as the Company is subject to the reporting provisions of the Exchange Act, delivery of copies of the Company's annual report on Form 10-K for such period will satisfy the requirements of this paragraph (b); (c) together with each delivery of financial statements pursuant to subdivisions (a) and (b) of this section 7, an Officers' Certificate (i) stating that the signers have reviewed the terms of this Agreement and of the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken or is taking or proposes to take with respect thereto, (ii) specifying the amount available at the end of such accounting period for Restricted Payments in compliance with section 10.4 and showing in reasonable detail all calculations required in arriving at such amount, and (iii) demonstrating in reasonable detail compliance during and at the end of such accounting period with the restrictions contained in sections 10.1, 10.3, 10.4, 10.5, 10.6 and 10.9; (d) together with each delivery of financial statements pursuant to subdivision (b) of this section 7, a written statement by the independent public accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement and of the Notes as they relate to accounting matters and that such review is sufficient to enable them to make the statement referred to in clause (iii) of this sub- division (d) (it being understood that no special audit procedures, other than those required by generally accepted auditing standards, shall be required), (ii) stating whether, in the course of their audit examination, they obtained knowledge (and whether, as of the date of such written statement, they have knowledge) of the existence of any condition or event which constitutes an Event of Default or Potential Event of Default, and, if so, specifying the nature and period of existence thereof, and (iii) stating that they have examined the Officers' Certificate delivered in connection 14 therewith pursuant to subdivision (c) of this section 7 and that the matters set forth in such Officers' Certificate pursuant to clauses (ii) and (iii) of such subdivision (c) have been properly stated in accordance with the terms of this Agreement; (e) concurrently with the delivery thereof to other lenders or security holders of Dixon Mexico, quarterly and annual balance sheets of Dixon Mexico and the related statements of income, stockholders' equity and (annually) cash flows of Dixon Mexico for such period, all meeting substantially the same criteria as set forth in subdivisions (a) and (b) above. (f) promptly upon receipt thereof, copies of all final reports submitted to the Company by independent public accountants in connection with each annual, interim or special audit of the books of the Company or any Subsidiary made by such accountants, including, without limitation, the comment letter submitted by such accountants to management in connection with their annual audit; (g) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its public security holders, of all regular and periodic reports and all registration statements and prospectuses filed by the Company or any Subsidiary with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions, and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company or its Subsidiaries; (h) immediately upon the Company obtaining knowledge of any condition or event which constitutes an Event of Default or Potential Event of Default, or that the holder of any Note has given any notice or taken any other action with respect to a claimed Event of Default or Potential Event of Default under this Agreement or that any Person has given any notice to the Company or any Subsidiary or taken any other action with respect to a claimed default or event or condition of the type referred to in section 11(f), an Officers' Certificate describing the same and the period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto; (i) immediately upon the Company obtaining knowledge of the occurrence of any (i) "reportable event", as such term is defined in section 4043 of ERISA, or (ii) "prohibited transaction", as such term is defined in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Company has taken, is taking and proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto, provided that, with respect to the occurrence of any "reportable event" as to which the PBGC has waived the 30-day reporting requirement, such written notice need be given only at the time notice is given to the PBGC; and 15 (j) with reasonable promptness, such other financial reports and information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested. 8. INSPECTION; CONFIDENTIALITY. 8.1. INSPECTION. The Company will permit any authorized representatives designated by you, so long as you shall be entitled to purchase Notes under this Agreement or you or your nominee shall be the holder of any Notes, or by any other holder of any Notes, without expense to the Company, to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their books of account, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all at such reasonable times and as often as may be reasonably requested. 8.2. CONFIDENTIALITY. You agree that you will use your best efforts not to disclose without the prior consent of the Company (other than to your employees, officers, directors, advisors, auditors or counsel or to another holder of the Notes) any information with respect to the Company or any Subsidiary which is furnished pursuant to section 7 or this section 8 and which is designated by the Company to you in writing as confidential, provided that you may disclose any such infor- mation (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over you or to the National Association of Insurance Commissioners or similar organizations or their successors, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) to the extent that you believe it appropriate in order to protect your investment in the Notes or in order to comply with any law, order, regulation or ruling applicable to you or (e) to the prospective transferee in connection with any contemplated transfer of any of the Notes by you. 9. PREPAYMENT OF NOTES. 9.1. REQUIRED PREPAYMENTS. On each of September 26, 2001 and September 26, 2002, the Company will prepay $5,500,000 principal amount of the Notes (or such lesser principal amount as shall then be outstanding), at the principal amount of the Notes so prepaid, without premium, provided that, upon any prepayment pursuant to section 9.4 or 9.5 of the Notes held by some but not all holders, the principal amount of each required prepayment of the Notes becoming due under this section 9.1 on and after the date of such prepayment under section 9.4 or 9.5, as the case may be, shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment under section 9.4 or 9.5. 9.2. OPTIONAL PREPAYMENTS WITH PREMIUM. The Company may, at its option, upon notice as provided in section 9.6, prepay at any time all, or from time to time any part (in an amount of at least $500,000 in the aggregate or an integral multiple of $1,000 in excess thereof) of, the Notes at the principal amount so prepaid, plus the Make-Whole Premium. 16 9.3. OPTIONAL PREPAYMENT UPON PUBLIC OFFERING. The Company may, at its option, upon notice as provided in section 9.6, prepay at any time on or prior to September 26, 1999, concurrently with or within five days after the occurrence of any Public Offering, up to $4,950,000 principal amount (in an amount of at least $100,000 in the aggregate or an integral multiple of $1,000 in excess thereof) of the Notes, at the principal amount so prepaid, plus a premium equal to the lesser of (a) the Make-Whole Premium and (b) 9.0% of the principal amount of the Notes so prepaid, provided that no prepayment shall be made pursuant to this section 9.2 unless, immediately after giving effect to such prepayment, the aggregate principal amount of the Notes remaining outstanding shall be not less than $11,550,000. 9.4. CONTINGENT PREPAYMENTS UPON CHANGE OF CONTROL. In the event of the occurrence of a Change of Control, then the Company shall give prompt written notice thereof to each holder of the Notes, by registered mail (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder), which notice shall contain a written, irrevocable offer by the Company to prepay, on a date specified in such notice (which date shall be not less than 30 days and not more than 60 days after the date of such notice), the Notes held by such holder in full (and not in part). Upon the acceptance of such offer by such holder mailed to the Company at least 10 days prior to the date of prepayment specified in the Company's offer, such prepayment shall be made at the principal amount of the Notes so prepaid, plus a premium equal to 1.0% of the principal amount of the Notes so prepaid. Any offer by the Company to prepay the Notes pursuant to this section 9.4 shall be accompanied by an Officers' Certificate certifying that the conditions of this section 9.4 have been fulfilled and specifying the particulars of such fulfillment. If the holder of any Notes shall accept such offer, the principal amount of such Notes shall become due and payable on the date specified in such offer. In the event that there shall have been a partial prepayment of the Notes under this section 9.4, the Company shall promptly give notice to the holders of the Notes, accompanied by an Officers' Certificate setting forth the principal amount of each of the Notes that was prepaid and specifying how each such amount was determined, and setting forth the reduced amount of each required prepayment thereafter becoming due with respect to the Notes under section 9.1 and certifying that such reduction has been computed in accordance with section 9.1. 9.5. CONTINGENT PREPAYMENT UPON SALE OF CERTAIN ASSETS. In the event that at any time there shall be Excess Sale Proceeds of $1,000,000 or more, then the Company shall give prompt written notice thereof to each holder of the Notes, by registered mail (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder), which notice shall contain a written, irrevocable offer by the Company to prepay, on a date specified in such notice (which date shall be not less than 30 days and not more than 60 days after the date of such notice), the Notes in an aggregate principal amount equal to the amount of Excess Sale Proceeds. Upon the acceptance of such offer by such holder mailed to the Company at least 10 days prior to the date of prepayment specified in the Company's offer, such prepayment shall be made at the principal amount of the Notes so prepaid, plus a premium equal to (a) 6.0% of the principal amount of the Notes so prepaid, if the date of prepayment shall be on or prior to September 26, 1998, and (b) 5.0% of the principal amount of the Notes so prepaid, if the date of prepayment shall be after September 26, 1998 Any offer by the Company to 17 prepay the Notes pursuant to this section 9.5 shall be accompanied by an Officers' Certificate certifying that the conditions of this section 9.5 have been fulfilled and specifying the particulars of such fulfillment. If the holder of any Notes shall accept such offer, the principal amount of such Notes to be prepaid shall become due and payable on the date specified in such offer. In the event that there shall have been a partial prepayment of the Notes under this section 9.5, the Company shall promptly give notice to the holders of the Notes, accompanied by an Officers' Certificate setting forth the principal amount of each of the Notes that was prepaid and specifying how each such amount was determined, and if some but not all of the Notes were prepaid, setting forth the reduced amount of each required prepayment thereafter becoming due with respect to the Notes under section 9.1 and certifying that such reduction has been computed in accordance with section 9.1. 9.6. NOTICE OF OPTIONAL PREPAYMENTS; OFFICERS' CERTIFICATE. The Company will give each holder of any Notes written notice of each optional prepayment under section 9.2 or 9.3 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment, in each case specifying such date, the aggregate principal amount of the Notes to be prepaid, the principal amount of each Note held by such holder to be prepaid, and the premium, if any, applicable to such prepayment. Such notice shall be accompanied by an Officers' Certificate certifying that the conditions of such section have been fulfilled and specifying the particulars of such fulfillment. 9.7. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment paid or to be prepaid (except a prepayment pursuant to section 9.4 or 9.5 of the Notes held by some but not all holders), the principal amount of the Notes to be prepaid shall be allocated (in integral multiples of $1,000) among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment, with adjustments, to the extent practicable, to compensate for any prior prepayments not made exactly in such proportion. 9.8. MATURITY; SURRENDER, ETC. In the case of each prepayment, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable premium, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and premium, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 9.9. ACQUISITION OF NOTES. The Company will not, and will not permit any Subsidiary or Affiliate to, purchase, redeem or otherwise acquire any Note except upon the payment or prepayment thereof in accordance with the terms of this Agreement and such Note. 10. BUSINESS AND FINANCIAL COVENANTS. The Company covenants that from the date of this Agreement through the Closing and thereafter so long as any of the Notes are outstanding: 18 10.1. DEBT. The Company will not, and will not permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become or remain directly or indirectly liable with respect to, any Debt, or create, issue, sell, or otherwise become or remain directly or indirectly liable with respect to, any Disqualified Stock, except that: (a) the Company may become and remain liable with respect to the Debt evidenced by the Notes; (b) the Company and its subsidiaries may become and remain liable with respect to Debt outstanding pursuant to the Credit Agreement in an aggregate outstanding principal amount not to exceed at any time of determination $48,000,000; (c) the Company may become and remain liable with respect to Debt incurred to refund the Debt outstanding under the Credit Agreement (which shall not include any extension or modification of the Credit Agreement or any restructuring of the Credit Agreement involving the same or substantially the same parties as the parties to the Credit Agreement on the date hereof) or any previous refunding thereof (any such Debt being referred to as "Refunding Debt") if (i) the principal amount of such Refunding Debt does not exceed the principal amount of the Debt being refunded, (ii) the Weighted Average Life to Maturity of such Refunding Debt is not shorter than that of the Debt being refunded, and (iii) the rate or rates of interest applicable to such Refunding Debt does not exceed by more than 2% the interest rate or rates (including the rate of interest payable upon the occurrence of any default or event of default thereunder) permitted to be charged under the Credit Agreement as in effect on the date hereof; (d) the Company and its Subsidiaries may remain liable with respect to Debt and Disqualified Stock outstanding on the date of this Agreement and referred to in Schedule B; (e) any Wholly-Owned Subsidiary may become and remain liable with respect to Debt owing to or Disqualified Stock held by the Company; (f) any Person that becomes a Wholly-Owned Subsidiary may remain liable with respect to its Debt and Disqualified Stock outstanding on the date it becomes a Wholly-Owned Subsidiary (other than Debt and Disqualified Stock incurred or issued in contemplation of its becoming a Wholly-Owned Subsidiary), provided that, on the date such Person becomes a Wholly-Owned Subsidiary and immediately after giving effect thereto, the Company could incur $1.00 of Debt pursuant to subdivision (k) of this section 10.1; (g) any Wholly-Owned Subsidiary may become and remain liable with respect to Debt or Disqualified Stock incurred or issued to refinance any Debt or Disqualified Stock outstanding pursuant to subdivision (d) or (f) of this section 10.1, provided that with respect to any such Debt or Disqualified Stock incurred or issued pursuant to this subdivision (g) (a "Refinancing Instrument")(i) the principal amount or liquidation value of the Refinancing Instrument shall not exceed that of the Debt or Disqualified Stock 19 being refinanced plus reasonable fees and expenses incurred in connection with such refinancing; (ii) the Refinancing Instrument shall have a final maturity later than that of the Debt or Disqualified Stock being refinanced and a Weighted Average Life to Maturity equal to or greater than that of the Debt or Disqualified Stock being refinanced; (iii) Debt issued to refinance Debt subordinate in right of payment to the Notes shall be subordinate in right of payment to the Notes at least to the extent of the Debt being refinanced; and (iv) Debt shall not be issued to refinance Disqualified Stock; (h) Dixon Mexico may become and remain liable with respect to Debt in an aggregate principal amount outstanding not to exceed at any time of determination $3,000,000; (i) the Company may become and remain liable with respect to Debt (which may be pursuant to the Credit Agreement) in addition to that otherwise permitted by the foregoing provisions of this section 10.1 in an aggregate principal amount outstanding not to exceed at any time of determination $3,000,000; (j) the Company's Subsidiaries may become and remain liable with respect to Debt and Disqualified Stock in addition to that otherwise permitted by the foregoing provisions of this section 10.1 in an aggregate principal amount outstanding not to exceed at any time of determination $100,000; (k) the Company may become and remain liable with respect to Debt (which may be pursuant to the Credit Agreement) in addition to that otherwise permitted by the foregoing provisions of this section 10.1, provided that, on the date the Company becomes liable with respect to such Debt and immediately after giving effect thereto and to the concurrent retirement of any other Debt: (i) the Consolidated Interest and Dividend Coverage Ratio shall not be less than 1.85 to 1.0 (if such date occurs on or prior to September 30, 1996), 2.0 to 1.0 (if such date occurs after September 30, 1996 and on or prior to September 30, 1997), 2.25 to 1.0 (if such date occurs after September 30, 1997 and on or prior to September 30, 1998), and 2.50 to 1.0 (if such date occurs after September 30, 1998); (ii) the ratio of Debt plus Disqualified Stock to Adjusted EBIT shall not exceed 5.5 to 1.0 (if such date occurs on or prior to September 30, 1997), 5.0 to 1.0 (if such date occurs after September 30, 1997 and on or prior to September 30, 1998), and 4.5 to 1.0 (if such date occurs after September 30, 1998); and (iii) no condition or event shall exist which constitutes an Event of Default or Potential Event of Default. No Debt incurred by the Company or any Subsidiary pursuant to this section 10.1 shall be subordinate in right of payment to any other Debt of the Company or any Subsidiary unless such Debt is Permitted Subordinated Debt. 20 10.2. LIENS, ETC. The Company will not, and will not permit any Subsidiary to, directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any property or asset (including any document or instrument in respect of goods or accounts receivable) of the Company or any Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, except: (a) Liens for taxes, assessments or other governmental charges the payment of which is not at the time required by section 10.11; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due or the payment of which is not at the time required by section 10.11; (c) Liens (other than any Lien imposed by ERISA or the Code in connection with a Plan) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (d) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any Sub- sidiary; and (f) Liens incurred to secure the Debt (other than subordinated Debt) of the Company outstanding in compliance with section 10.1(b) or (c) or (if the Debt referred to in section 10.1(i) is incurred pursuant to the Credit Agreement) (i); (g) Liens existing on the date of this Agreement and securing the Debt of the Company and its Subsidiaries referred to in Schedule B-2; (h) any Lien created to secure all or any part of the purchase price, or to secure Debt incurred or assumed to pay all or any part of the purchase price, of property acquired by the Company or a Subsidiary after the Closing Date, provided that (i) any such Lien shall be confined solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property 21 or which is real property being improved by such acquired property, (ii) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to 100% of the lesser of (A) the cost to the Company or such Subsidiary of the property so acquired and (B) the fair market value of such property (as determined in good faith by the Board) at the time of such acquisition, and (iii) any such Lien shall be created within three months after, in the case of property, its acquisition, or, in the case of improvements, their completion; (i) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any property acquired by the Company or any Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Subsidiary or such acquisition of property, and provided further that each such Lien shall at all times be confined solely to the item or items of property so acquired and, if required by the terms of the instru- ment originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property; and (j) any Lien renewing, extending or refunding any Lien permitted by subdivision (f), (g), (h) or (i) of this section 10.2, provided that the principal amount of Debt secured by such Lien immediately prior thereto is not increased or the maturity thereof reduced and such Lien is not extended to other property, and provided further that each such Lien shall at all times be confined solely to the item or items of property subject to the Lien being renewed, extended or refunded. For the purposes of this section 10.2, any Person becoming a Subsidiary after the date of this Agreement shall be deemed to have incurred all of its then outstanding Liens at the time it becomes a Subsidiary, and any Person extending, renewing or refunding any Debt secured by any Lien shall be deemed to have incurred such Lien at the time of such extension, renewal or refunding. 10.3. INVESTMENTS, GUARANTIES, ETC. The Company will not, and will not permit any Subsidiary to, directly or indirectly make or own any Investment in any Person, or create or become or be liable with respect to any Guaranty, except: (a) the Company and its Subsidiaries may make and own Investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof, 22 (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at any date of determination the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) commercial paper maturing no more than 270 days from the date of creation thereof and having as at any date of determination the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iv) certificates of deposit maturing within one year from the date of acquisition thereof issued by commercial banks incorporated under the laws of the United States of America or any state thereof or the District of Columbia, each having as at any date of determination combined capital and surplus of not less than $300,000,000 ("Permitted Banks") or a foreign branch thereof, (v) bankers' acceptances eligible for rediscount under requirements of The Board of Governors of the Federal Reserve System and accepted by Permitted Banks, (vi) obligations of the type described in clauses (i) through (iv) above purchased from a securities dealer designated as a "primary dealer" by the Federal Reserve Bank of New York or a Permitted Bank as counterparty pursuant to a repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the Company and its Subsidiaries by a custodian which is a Permitted Bank and which is not the counterparty to the repurchase agreement in question, and (vii) the securities of any investment company registered under the Investment Company Act of 1940 which is a "money market fund" within the meaning of regulations of the Securities and Exchange Commission, or an interest in a pooled fund maintained by a Permitted Bank having comparable investment restrictions; (b) the Company and its Wholly-Owned Subsidiaries may make and own Investments in any Wholly-Owned Subsidiary or any Person which simultaneously therewith becomes a Wholly-Owned Subsidiary, if such Wholly-Owned Subsidiary or such Person is a corporation organized under the laws of the United States or any state thereof or the District of Columbia or Canada and substantially all of whose assets are located and substantially all of whose business is conducted within the United States and Canada; (c) the Company may make and own Investments in Dixon Mexico (subject to the limitation set forth in section 10.4(b)); 23 (d) any Wholly-Owned Subsidiary may make and permit to be outstanding loans and advances to the Company; (e) the Company may become and remain liable with respect to Guaranties of the obligations of Subsidiaries incurred in the ordinary course of the business of such Subsidiaries; (f) the Company's Subsidiaries may become and remain liable with respect to Guaranties of the Notes set forth in the Guaranty Agreement; and (g) the Company and its Wholly-Owned Subsidiaries may, in addition to the Investments and Guaranties permitted by the foregoing subdivisions of this section 10.3, make and continue to own Investments in, and become and remain liable with respect to Guaranties of the obligations of, any Person (other than a Wholly- Owned Subsidiary or any Person which would simultaneously therewith become a Wholly-Owned Subsidiary) if the Company would be permitted to make such Investment or Guaranty pursuant to, and within the limitations specified in, section 10.4 (any such Investment or Guaranty made pursuant to this subdivision (g) being referred to as a "Restricted Investment"). Notwithstanding the foregoing, no Guaranty shall be permitted by this section 10.3 unless either the maximum dollar amount of the obligation being guaranteed is readily ascertainable by the terms of such obligation or the agreement or instrument evidencing such Guaranty specifically limits the dollar amount of the maximum exposure of the guarantor thereunder. 10.4. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a) The Company will not directly or indirectly declare, order, pay, make or set apart any sum or property for any Restricted Payment, and the Company will not and will not permit any Subsidiary to make or become obligated to make any Restricted Investment, unless, immediately after giving effect to any such proposed action: (i) no condition or event shall exist which constitutes an Event of Default or Potential Event of Default; and (ii) the sum of (x) the aggregate amount of all sums and property included in all Restricted Payments directly or indirectly declared, ordered, paid, made or set apart by the Company during the period from the Closing Date to and including the date of such proposed action plus (y) the aggregate amount of all Restricted Investments directly or indirectly made by the Company and its Subsidiaries, or which they have become obligated to make, during such period in any Person (but disregarding any Investment or Guaranty which was a Restricted Investment when made but which on the date of determination could have been made pursuant to one of the subdivisions of section 10.3 other than subdivision (h)) shall not exceed the sum of: (x) 25% (but, in the case of a deficit, 100%) of Consolidated Net Income for such period; plus 24 (y) the aggregate amount of the net cash proceeds received during such period from the sale of its capital stock (other than Disqualified Stock), and as consideration for the issuance during such period of Debt of the Company convertible into its capital stock (other than Disqualified Stock), but only to the extent that any such Debt has been converted into shares of such stock during such period, provided that the aggregate amount of such net cash proceeds to be taken into account for such period shall not exceed the aggregate of the amounts expended by the Company during such period for the redemption, retirement, purchase or other acquisition, direct or indirect, of any shares of capital stock of the Company or for the retirement, purchase or other acquisition, direct or indirect, of any Permitted Subordinated Debt; provided that any dividend which could be paid in compliance with this section 10.4 at the date of its declaration may continue to be paid notwithstanding any subsequent change. (b) The provisions of section 10.4(a) shall not, so long as no condition or event shall exist which constitutes an Event of Default of Potential Event of Default, prevent the acquisition by the Company for consideration (other than in shares of its capital stock) of shares of the capital stock of Dixon Mexico from Persons other than Affiliates in an aggregate amount of not more than $3,000,000. (c) For the purposes of this section 10.4, the amount involved in any Restricted Payment directly or indirectly declared, ordered, paid, made or set apart in property shall be the greater of the fair market value of such property (as determined in good faith by the Board) and the net book value thereof on the books of the Company (determined in accordance with generally accepted accounting principles) on the date such Restricted Payment is declared, ordered, paid, made or set apart. The Company will not declare any dividend (other than a dividend payable solely in shares of its own stock) on any shares of any class of its stock which is payable more than 60 days after the date of declaration thereof. The Company will not permit any Subsidiary, directly or indirectly, to declare, order, pay or make any Restricted Payment or to set apart any sum or property for any such purpose. 10.5. MINIMUM NET WORTH. The Company will not, as of the end of any fiscal quarter of the Company, permit Adjusted Net Worth to be less than the sum of $14,500,000 and 75% (but, in the case of a deficit, 100%) of Consolidated Net Income for the period from the Closing Date to and including the date of determination. 10.6. INTEREST AND DIVIDEND COVERAGE. The Company will not at any time permit the Consolidated Interest and Dividend Coverage Ratio to be less than 1.70 to 1.0 (if the date of determination occurs on or prior to September 30, 1996); 1.85 to 1.0 (if the date of determination occurs after September 30, 1996 and on or prior to September 30, 1997); 2.25 to 1.0 (if the date of determination occurs after September 30, 1997 and on or prior to September 30, 1998); and 2.50 to 1.0 (if the date of determination occurs after September 30, 1998). 25 10.7. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Subsidiary to, directly or indirectly, engage in any transaction (or series of related transactions) material to the Company or any of its Subsidiaries (including, without limitation, the purchase, sale or exchange of assets or the rendering of any service) with any Affiliate of the Company, except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those which might be obtained, in the good faith judgment of the Company, in an arm's length transaction at the time from Persons which are not such an Affiliate. In the case of any such transaction with an Affiliate involving aggregate consideration in excess of $500,000, the Company shall deliver to each holder of Notes an Officer's Certificate certifying that such transaction complies with this section 10.7; and in the case of any such transaction with an Affiliate involving aggregate consideration in excess of $2,000,000, (a) the Company shall deliver to each holder of Notes a favorable opinion as to the fairness to the Company or such Subsidiary of such transaction from a financial point of view, issued by an investment banking or accounting firm of national standing and (b) such transaction shall have been approved by a committee of disinterested members of the Board. 10.8. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Company will not, and will not permit any Subsidiary to, directly or indirectly, (a) consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, except that: (i) any Subsidiary may consolidate with or merge into the Company or a Wholly-Owned Subsidiary if the Company or such Wholly-Owned Subsidiary, as the case may be, shall be the surviving corporation and if, immediately after giving effect to such transaction, no condition or event shall exist which constitutes an Event of Default or Potential Event of Default; (ii) any corporation (other than a Subsidiary) may consolidate with or merge into the Company if the Company shall be the surviving corporation and if, immediately after giving effect to such transaction, (x) no condition or event shall exist which constitutes an Event of Default or Potential Event of Default, (y) substantially all of the assets of the Company shall be located and substantially all of its business shall be conducted within the United States and Canada, and (z) the Company could incur at least $1.00 of additional Debt in compliance with section 10.1(k); and (iii) the Company may consolidate with or merge into any other corporation if (x) the surviving corporation is a corporation organized and existing under the laws of the United States of America or a state thereof or Canada, with substantially all of its assets located and substantially all of its business conducted within the United States and Canada, (y) such corporation expressly assumes, by an 26 agreement satisfactory in substance and form to the holders of more than 50% of the Notes outstanding (subject to section 15.4) (which agreement may require the delivery in connection with such assumption of such opinions of counsel as such holders may reasonably require), the obligations of the Company under this Agreement and under the Notes, (z) immediately after giving effect to such transaction (and such assumption) (A) such corporation shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction, (B) such corporation would have Consolidated Tangible Net Worth equal to or greater than the Consolidated Tangible Net Worth of the Company immediately prior to the transaction, (C) such corporation could incur at least $1.00 of additional Debt in compliance with section 10.1(k) and (D) no condition or event shall exist which constitutes an Event of Default or a Potential Event of Default; or (b) sell, lease, abandon or otherwise dispose of all or substantially all its assets, except that: (i) any Subsidiary may sell, lease or otherwise dispose of all or substantially all its assets to the Company or a Wholly-Owned Subsidiary; (ii) the Company may sell, lease or otherwise dispose of all or substantially all its assets to any corporation into which the Company could be consolidated or merged in compliance with subdivision (a)(iii) of this section 10.8, provided that (x) each of the conditions set forth in such subdivision (a)(iii) shall have been fulfilled, and (y) no such disposition shall relieve the Company from its obligations under this Agreement or the Notes; or (c) sell, lease, abandon or otherwise dispose of any of its assets (except in a transaction permitted by subdivision (b) of this section 10.8), except that (i) the Company and its Subsidiaries may sell their goods in the ordinary course of business; (ii) the Company and its Subsidiaries may dispose of obsolete inventory and equipment in the ordinary course of business; (iii) the Company and its Subsidiaries may sell additional assets if such assets, together with all assets sold during any Reference Period, shall not constitute assets that exceed 10% of the lesser of (A) the total assets of the Company and its Subsidiaries shown on the balance sheet of the Company as of the most recent quarter-end prior to the commencement of such Reference Period and (B) the total assets of the Company and its Subsidiaries shown on the balance sheet of the Company as of the last day of such Reference Period; and 27 (iv) the Company and its Subsidiaries may sell additional assets, in each case for a consideration at least 85% of which is in the form of cash or cash equivalents of the type described in section 10.3(a), if such consideration is at least equal to the Fair Market Value of the assets to be sold and if the proceeds thereof shall, on or prior to the 180th day following such sale, be applied either (x) to the acquisition of assets consisting of writing instruments, art supplies, graphite refining or lubricants or refractories manufacturing businesses, or similar or related businesses, or plant and equipment to be used in such businesses; or (y) to the prepayment of Debt of the Company, first to Superior Debt of the Company and second to the Notes in the manner contemplated by section 9.5; it being agreed that if the Company shall not prior to such 180th day have performed or given notice to the holders of the Notes of its election to perform under one of the foregoing clauses (x) or (y), it shall be deemed to have elected to perform the obligation set forth in the foregoing clause (y), and the provisions of section 9.5 shall be applicable; provided that in no event shall the Company sell assets comprising all or substantially all of the assets of the Consumer Products Group. 10.9. SUBSIDIARY STOCK AND INDEBTEDNESS. The Company will not, and will not permit any Subsidiary to: (a) directly or indirectly sell, assign, pledge or otherwise dispose of any Debt of or any shares of stock of (or warrants, rights or options to acquire stock of) any Subsidiary except to a Wholly-Owned Subsidiary, or as directors' qualifying shares if required by applicable law or as permitted by subdivision (f) of section 10.2; (b) permit any Subsidiary directly or indirectly to sell, assign, pledge or otherwise dispose of any Debt of the Company or any other Subsidiary, or any shares of stock of (or warrants, rights or options to acquire stock of) any other Subsidiary, except to the Company or a Wholly-Owned Subsidiary or as directors' qualifying shares if required by applicable law; (c) permit any Subsidiary to have outstanding any shares of Preferred Stock other than shares of Preferred Stock which are owned by the Company or a Wholly-Owned Subsidiary; or (d) permit any Subsidiary directly or indirectly to issue or sell (including, without limitation, in connection with a merger or consolidation of a Subsidiary otherwise permitted by section 10.8(a)) any shares of its stock (or warrants, rights or options to acquire its stock) except to the Company or a Wholly-Owned Subsidiary or as directors' qualifying shares if required by applicable law; 28 provided that, subject to compliance with section 10.8(c), all Debt and shares of stock of any Subsidiary of the Company may be simultaneously sold as an entirety for a cash consideration at least equal to the Fair Market Value thereof at the time of such sale if such Subsidiary does not at the time own (i) any Debt of the Company or any of its Subsidiaries or (ii) any Debt or stock of any other Subsidiary which is not also being simultaneously sold as an entirety in compliance with this proviso and if immediately after giving effect to such transaction (and after deducting from Adjusted EBIT the Consolidated Net Income attributed to the assets so disposed of) the Company could incur at least $1.00 of additional Debt in compliance with section 10.1(k), and provided further that shares of stock of Subsidiaries owned by the Company may be disposed of in connection with a sale or other disposition by the Company of all or substantially all of its assets in compliance with section 10.8(b)(ii). 10.10. CORPORATE EXISTENCE, ETC.; BUSINESS. The Company will at all times preserve and keep in full force and effect its corporate existence, and rights and franchises deemed material to its business, and those of each of its Subsidiaries, except as otherwise specifically permitted by section 10.8 and except that the corporate existence of any Subsidiary may be terminated if, in the good faith judgment of the Board, such termination is in the best interest of the Company and is not disadvantageous to the holders of the Notes. The Company will not, and will not permit any Subsidiary to, engage in any business other than the business of manufacturing writing instruments or art supplies, graphite refining or lubricants or refractories manufacturing and other activities incidental or related to such business. 10.11. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each Subsidiary to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a Lien upon any of its properties or assets, - provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and if such reserves or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor. 10.12. COMPLIANCE WITH ERISA. The Company will not, and will not permit any Subsidiary to, (a) engage in any transaction in connection with which the Company or any Subsidiary could be subject to either a civil penalty assessed pursuant to section 502(i) of ERISA or a tax imposed by section 4975 of the Code, terminate or withdraw from any Plan (other than a Multiemployer Plan) in a manner, or take any other action with respect to any such Plan (including, without limitation, a substantial cessation of operations within the meaning of section 4062(f) of ERISA), which could result in any liability of the Company or any Subsidiary to the PBGC, to a trust established pursuant to section 4041(c)(3)(B)(ii) or (iii) or 4042(i) of ERISA, or to a trustee appointed under section 4042(b) 29 or (c) of ERISA, incur any liability to the PBGC on account of a termination of a Plan under section 4064 of ERISA, fail to make full payment when due of all amounts which, under the provisions of any Plan, the Company or any Subsidiary is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency, whether or not waived, with respect to any Plan (other than a Multiemployer Plan), if, in any such case, such penalty or tax or such liability, or the failure to make such payment, or the existence of such deficiency, as the case may be, could have a material adverse effect on the Company or any of its Subsidiaries; (b) permit the present value of all vested accrued benefits under all Plans maintained at such time by the Company and any Subsidiary (other than Multiemployer Plans) guaranteed under Title IV of ERISA to exceed the current value of the assets of such Plans allocable to such vested accrued benefits by more than $2,000,000; (c) permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans incurred by the Company and its Subsidiaries to exceed $1,000,000; or (d) permit the sum of (i) the amount by which the current value of all vested accrued benefits referred to in subdivision (b) of this section 10.12 exceeds the current value of the assets referred to in such subdivision (b) and (ii) the amount of the aggregate incurred withdrawal liability referred to in subdivision (c) of this section 10.12 to exceed $2,000,000. For the purposes of subdivisions (c) and (d) of this section 10.12, the amount of the withdrawal liability of the Company and its Subsidiaries at any date shall be the aggregate present value of the amount claimed to have been incurred less any portion thereof as to which the Company reasonably believes, after appropriate consideration of possible adjustments arising under sections 4219 and 4221 of ERISA, it and its Subsidiaries will have no liability, provided that the Company shall obtain prompt written advice from independent actuarial consultants supporting such determination. The Company agrees (i) once in each calendar year to request and obtain a current statement of withdrawal liability from each Multiemployer Plan and (ii) to transmit a copy of such statement to each holder of any Notes, within 15 days after the Company receives the same. As used in this section 10.12, the term "accumulated funding deficiency" has the meaning specified in section 302 of ERISA and section 412 of the Code, and the terms "present value", "current value" and "accrued benefit" have the meanings specified in section 3 of ERISA. 10.13. MAINTENANCE OF PROPERTIES; INSURANCE. The Company will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of 30 established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations. Such insurance may be subject to co-insurance, deductibility or similar clauses which, in effect, result in self-insurance of certain losses, provided that such self-insurance is in accord with the approved practices of corporations similarly situated and adequate insurance reserves are maintained in connection with such self-insurance. 10.14. ADDITIONAL GUARANTIES. The Company shall cause any Person that hereafter becomes a Subsidiary of the Company to execute and deliver to the holders of the Notes a Guaranty Agreement with respect to the obligations of the Company hereunder and under the Notes, substantially in the form of Exhibit D, with such changes to such form as may be appropriate to reflect the identity and circumstances of the guarantor. 10.15. RESTRICTIONS AFFECTING SUBSIDIARIES. The Company will not, and will not permit any Subsidiary to, create or otherwise permit to exist any restriction on the ability of any Subsidiary (a) to pay dividends or make any other distributions on its capital stock or any other interest in its profits owned by the Company or any other Subsidiary, or pay any Debt owed to the Company or any other Subsidiary; (b) make any loan or advance to the Company or any other Subsidiary; or (c) transfer any of its properties or assets to the Company or any other Subsidiary; other than (i) any such restriction in effect pursuant to Debt outstanding on the date of this Agreement and described in Schedule B-2; (ii) any such restriction in effect pursuant to Debt of a Person outstanding at the time such Person becomes a Wholly-Owned Subsidiary (other than Debt incurred in contemplation of its becoming a Wholly-Owned Subsidiary), provided that such restriction shall at all times be confined solely to the Person or the assets and properties of the Person so acquired; (iii) any such restriction in effect pursuant to Debt incurred to renew, extend or refund any Debt referred to in paragraph (i) or (ii) of this section 10.15, provided that the restrictions in effect under such Debt shall be no less favorable to the holders of the Notes than those in effect prior thereto; (iv) any such restriction contained in security agreements permitted by section 10.2, provided that such restriction shall at all times be confined solely to the item or items of property covered by such security agreement; and (v) restrictions consisting of customary non-assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of such leasehold interests. 31 10.16. AMENDMENT OF CREDIT AGREEMENT. The Company will not enter into any amendment or modification of Section 8.8 of the Credit Agreement or any amendment or modification of the Credit Agreement which would materially shorten the maturity date of any required payment of any of the Loans thereunder. 11. EVENTS OF DEFAULT; ACCELERATION. If any of the following conditions or events ("Events of Default") shall occur and be continuing: (a) if the Company shall default in the payment of any principal of or premium, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) if the Company shall default in the payment of any interest on any Note for more than 10 days after the same becomes due and payable; or (c) if the Company shall default in the performance of or compliance with any term contained in section 7(h) or section 10.1 through 10.9, inclusive, or section 10.14; or (d) if the Company shall default in the performance of or compliance with any term contained in this Agreement other than those referred to above in this section 11 and such default shall not have been remedied within 30 days after such failure shall first have become known to any officer of the Company or written notice thereof shall have been received by the Company from any holder of any Note; or (e) if any representation or warranty made in writing by or on behalf of the Company in this Agreement or in any instrument furnished in compliance with or in reference to this Agreement or otherwise in connection with the transactions contemplated by this Agreement shall prove to have been false or incorrect in any material respect on the date as of which made; or (f) if the Company or any Subsidiary shall default (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $1,000,000 (other than the Notes), or if any event shall occur or condition shall exist in respect of any such Debt which is outstanding in a principal amount of at least $1,000,000 or under any evidence of any such Debt or of any mortgage, indenture or other agreement relating thereto, the effect of which default, event or condition is to cause the acceleration of the payment of such Debt before its stated maturity or before its regularly scheduled dates of payment; or (g) if a final judgment or judgments (other than any judgment associated with the ECRA Decision) shall be rendered against the Company or any Subsidiary for the payment of money in excess of $1,000,000 (in excess of insurance coverage) in the aggregate and any one of such judgments shall not be discharged or execution thereon stayed pending appeal, within 60 days after entry 32 thereof, or, in the event of such a stay, such judgment shall not be discharged within 60 days after such stay expires; or (h) if the Company or any Subsidiary shall (i) be generally not paying its debts as they become due, (ii) file, or consent by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment for the benefit of its creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) be adjudicated insolvent or (vi) take corporate action for the purpose of any of the foregoing; or (i) if a court or governmental authority of competent jurisdiction shall enter an order appointing, without consent by the Company or any Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Subsidiary, or if any petition for any such relief shall be filed against the Company or a Subsidiary and such petition shall not be dismissed within 30 days; then, (x) upon the occurrence of any Event of Default described in subdivision (h) or (i) of this section 11 with respect to the Company (other than such an Event of Default described in clause (i) of subdivision (h) or described in clause (vi) of subdivision (h) by virtue of the reference in such clause (vi) to such clause (i)), the unpaid principal amount of and accrued interest on the Notes shall automatically become due and payable or (y) upon the occurrence of any other Event of Default, any holder or holders of 25% or more (in the case of any Event of Default described in subdivision (a) or (b) of this section 11) or any holder or holders of more than 35% (in the case of any Event of Default described in any other subdivision of this section 11), in principal amount of the Notes at the time outstanding (subject to section 15.4) may at any time (unless all defaults shall theretofore have been remedied) at its or their option, by written notice or notices to the Company, declare all the Notes to be due and payable, whereupon (A) if at the time there shall be no Superior Debt outstanding, the Notes shall forthwith mature and become due and payable, and (B) if at the time there shall be Superior Debt outstanding, the Notes shall mature and become due and payable upon the earlier to occur of (1) the acceleration of the maturity of any Superior Debt by the holder or holders thereof and (2) the forty- fifth day following notice of such declaration by such holder or holders of 25% or more in principal amount of the Notes to the Company (and the Company shall forward such notice to the holders of the Superior Debt), in each case together with interest accrued thereon; and, in the case of any Event of Default described in this section 11, there shall also be due and payable, to the extent permitted by applicable law, a premium equal to the Make-Whole Premium, all without presentment, demand, protest or (other than as specifically provided for in this Agreement) notice, which are hereby waived. 33 At any time after the principal of, and interest accrued on, any or all of the Notes are declared due and payable, the holders of not less than 75% in aggregate principal amount of the Notes then outstanding (subject to section 15.4), by written notice to the Company may rescind and annul any such declaration and its consequences if (x) the Company has paid all overdue interest on the Notes, the principal of and premium, if any, on any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue principal and premium and (to the extent permitted by applicable law) any overdue interest in respect of the Notes at the rate of 14% per annum, (y) all Events of Default, other than non-payment of amounts which have become due solely by reason of such declaration, and all conditions and events which constitute Events of Default or Potential Events of Default have been cured or waived pursuant to section 19, and (z) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; but no such rescission and annulment shall extend to or affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. 12. REMEDIES ON DEFAULT, ETC. In case any one or more Events of Default or Potential Events of Default shall occur and be continuing, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in such Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. In case of a default in the payment of any principal of or premium, if any, or interest on any Note, the Company will pay to the holder thereof such further amount as shall be sufficient to cover the cost and expenses of collection, including, without limitation, reasonable attorneys' fees, expenses and disbursements. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. 13. SUBORDINATION OF SUBORDINATED NOTES. 13.1. GENERAL. The Notes (the "Subordinated Debt") shall be subordinate and junior in right of payment to all Superior Debt (as defined in section 13.2) to the extent and in the manner provided in this section 13. The provisions of this section 13 are intended to be for the benefit of the holders from time to time of the Superior Debt. 13.2. SUPERIOR DEBT. As used in this section 13, the term "Superior Debt" shall mean (a) all principal of and premium, if any, and interest on Debt of the Company outstanding from time to time under the Credit Agreement and all fees and expenses payable under the Credit Agreement and (b) other Debt of the Company outstanding in compliance with section 10.1 other than (i) Debt which by its terms is subordinated to any other Debt of the Company and (ii) Debt outstanding between the Company and any Affiliate of the Company or between any Subsidiary and another Subsidiary or Affiliate of the Company). The Superior Debt shall continue to be Superior Debt and entitled to the benefits of these 34 subordination provisions irrespective of any restatement, amendment, modification or waiver of any term of the Credit Agreement or the Superior Debt or extension or renewal of the Credit Agreement or the Superior Debt. 13.3. DEFAULT IN RESPECT OF SUPERIOR DEBT. (a) In the event the Company shall default in the payment of any principal of, or premium, if any, or interest on any Superior Debt when the same becomes due and payable, whether at maturity or at a date fixed for payment or prepayment thereof or by declaration or otherwise, then, unless and until such default shall have been remedied or waived in writing or shall have ceased to exist, no direct or indirect payment (in cash, property or securities or by set-off or otherwise, except securities which are subor- dinate and junior in right of payment to the payment of Superior Debt at least to the extent provided in this section 13) shall be made on account of the principal of, or premium, if any, or interest on any Subordinated Debt, or as a sinking fund for Subordinated Debt, or in respect of any redemption, retirement, purchase or other acquisition of any Subordinated Debt. (b) Upon the happening of an event of default with respect to any Superior Debt, as defined therein or in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof (other than under circumstances when the terms of sec- tion 13.3(a) are applicable), then, unless and until such event of default shall have been remedied or waived in writing or shall have ceased to exist, no direct or indirect payment (in cash, property or securities or by set-off or otherwise, except securities which are subor- dinate and junior in right of payment to the payment of Superior Debt at least to the extent provided in this section 13) shall be made on account of the principal of or premium, if any, or interest on any Subordinated Debt or as a sinking fund for the Subordinated Debt, or in respect of any redemption, retirement, purchase or other acquisition of any Subordinated Debt, during any period: (i) during any period of up to 179 days after written notice of such default shall have been given to the Company and each holder of Subordinated Debt by any holder of Superior Debt, provided that only one such notice may be given by the holders of the Superior Debt in any 360-day period; or (ii) in which any judicial proceeding shall be pending in respect of such default or an effective notice of acceleration of the maturity of the Superior Debt shall have been transmitted to the Company in respect of such default. 13.4. INSOLVENCY, ETC. In the event of: (a) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors as such or its property, (b) any proceeding for the liquidation, dissolution or other winding-up of the Company, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, 35 (c) any assignment by the Company for the benefit of creditors, or (d) any other marshaling of the assets of the Company, all Superior Debt shall first be paid in full in cash or cash equivalents (or with other assets acceptable to the holders of the Superior Debt) before payment or distribution, whether in cash, securities or other property, shall be made to any holder of any Subordinated Debt on account of any Subordinated Debt. Any payment or distribution, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in this section 13 with respect to the Subordinated Debt, to the payment of all Superior Debt at the time outstanding and to any securi- ties issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of Subordinated Debt shall be paid or delivered directly to the holders of Superior Debt in accordance with the priorities then existing among such holders until all Superior Debt shall have been paid in full in cash or cash equivalents (or with other assets acceptable to the holders of the Superior Debt). 13.5. PAYMENTS AND DISTRIBUTIONS RECEIVED. If any payment or distribution of any character or any security, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in this section 13 with respect to Subordinated Debt, to the payment of all Superior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), shall be received by any holder of any Subordinated Debt in contravention of any of the terms hereof and before all the Superior Debt shall have been paid in full in cash or cash equivalents (or with other assets acceptable to the holders of the Superior Debt), such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Superior Debt at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Superior Debt remaining unpaid, to the extent necessary to pay all such Superior Debt in full in cash (or with other assets acceptable to the holders of the Superior Debt). 13.6. NO PREJUDICE OR IMPAIRMENT. No present or future holder of any Superior Debt shall be prejudiced in the right to enforce subordination of the Subordinated Debt by any act or failure to act on the part of the Company or the holders of the Subordinated Debt. Nothing contained herein shall impair, as between the Company and the holder of any Subordinated Debt, the obligation of the Company to pay to the holder thereof the principal thereof and interest thereon as and when the same shall become due and payable in accordance with the terms thereof and of this Agreement, or prevent the holder of any Subordinated Debt from exercising all rights, powers and remedies otherwise permitted by ap- plicable law or hereunder upon a Potential Event of Default or Event of Default hereunder, all subject to the terms of this section 13 and the rights of the holders of the Superior Debt to receive cash, securities or 36 other property otherwise payable or deliverable to the holders of Subordinated Debt. 13.7. PAYMENT OF SUPERIOR DEBT, SUBROGATION, ETC. Upon the payment in full of all Superior Debt in cash (or with other assets acceptable to the holders of the Superior Debt), the holders of Subordinated Debt shall be subrogated to all rights of any holders of Superior Debt to receive any further payments or distributions applicable to the Superior Debt until the Subordinated Debt shall have been paid in full, and, for the purposes of such subrogation, no payment or distribution received by the holders of Superior Debt of cash, securities, or other property to which the holders of Subordinated Debt would have been entitled except for this section 13 shall, as between the Company and its creditors other than the holders of Superior Debt, on the one hand, and the holders of Subordinated Debt, on the other, be deemed to be a payment or distribution by the Company on account of Superior Debt. 14. DEFINITIONS. As used herein the following terms have the following respective meanings: Adjusted EBIT: for any Reference Period, Consolidated Net Income before dividends, (a) adjusted by adding thereto (i) Consolidated Interest Expense, (ii) "minority interests" related to Dixon Mexico, and (iii) income taxes, all to the extent deducted in arriving at the calculation of Consolidated Net Income for such Reference Period; (b) further adjusted by excluding therefrom all extraordinary gains and losses and all other extraordinary or non-recurring items (in each case as determined in accordance with generally accepted accounting principles), and (c) further adjusted by deducting therefrom Minority EBIT for such Reference Period. Adjusted Net Worth: at any date of determination, the stockholders' equity (including amounts attributable to Preferred Stock) shown on the balance sheet of the Company and its consolidated Subsidiaries delivered pursuant to section 7 most recently prior to such date, adjusted to exclude (to the extent included in calculating such equity), (a) amounts attributable to Disqualified Stock or treasury stock of the Company and its consolidated Subsidiaries, (b) all upward revaluations and other write-ups in the book value of any asset of the Company or a Subsidiary subsequent to the Closing Date, and (c) the amount of the "Cumulative Translation Adjustment" (as shown on such consolidated balance sheet), provided, however, that the amount of the "Cumulative Translation Adjustment" excluded from the calculation of Adjusted Net Worth shall not be less than $3,250,000. Affiliate: any Person directly or indirectly controlling or controlled by or under common control with the Company or any Subsidiary, including (without limitation) any Person beneficially owning or holding 5% or more of any class of voting securities of the Company or any Subsidiary or any other corporation of which the Company or any Subsidiary owns or holds 5% or more of any class of voting securities, provided that, for purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through 37 the ownership of voting securities or by contract or otherwise, and provided further that neither you nor any other Person which is an institution shall be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of ownership of the Notes or other securities issued in exchange for the Notes or by reason of having the benefits of any agreements or covenants of the Company contained in this Agreement. Board: the Board of Directors of the Company or a committee of three or more directors lawfully exercising the relevant powers of the Board. Business Day: any day except a Saturday, a Sunday or other day on which commercial banks in New York City are required or authorized by law to be closed. Capital Lease: as applied to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee which would, in accordance with generally accepted accounting principles, be required to be classified and accounted for as a capital lease on a balance sheet of such Person, other than, in the case of the Company or a Subsidiary, any such lease under which the Company or a Wholly-Owned Subsidiary is the lessor. Capital Lease Obligation: with respect to any Capital Lease, the amount of the obligation of the lessee thereunder which would, in accordance with generally accepted accounting principles, appear on a balance sheet of such lessee in respect of such Capital Lease. CERCLA: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. Change of Control: (a) the sale, lease or transfer of all or substantially all of the Company's assets to any Person or "group" (within the meaning of Section 13(d) of the Exchange Act, hereinafter a "Group") together with any Affiliates thereof, (b) the liquidation of the Company, (c) the acquisition after the date hereof by any Person or Group, together with any Affiliates thereof, of in excess of 30% of the Voting Stock of the Company, or (d) the success by any Person or Group, together with any Affiliates thereof, in causing its or their nominees to be elected to the Board such that such nominees, when added to any director remaining on the Board who is an Affiliate or Related Person of such Person or Group, shall constitute 50% or more of the Board. Code: the Internal Revenue Code of 1986, as amended from time to time. Common Stock: the meaning specified in section 1. Consolidated Interest and Dividend Coverage Ratio: for any Reference Period, the ratio of (a) Adjusted EBIT for such Reference Period to (b) the sum of (i) Consolidated Interest Expense for such Reference Period, plus (ii) Capitalized Interest for such Reference Period, plus (iii) all cash dividends accrued or paid on capital stock, including Disqualified Stock, of the Company during such Reference Period. 38 Consolidated Interest Expense: for any Reference Period, Interest Expense of the Company and its consolidated Subsidiaries for such Reference Period. Consolidated Net Income: for any Reference Period, (a) the net income (or deficit) of the Company and its Subsidiaries for such period (taken as a cumulative whole), after deducting all operating expenses, provisions for all taxes and reserves and all other proper deductions, all determined in accordance with generally accepted accounting principles on a consolidated basis, less (b) the net income (or deficit) of any Subsidiary that is less than Wholly-Owned (other than Dixon Mexico). Consolidated Tangible Net Worth: Adjusted Net Worth, adjusted by (a) adding thereto the amount of the "Cumulative Translation Adjustment" excluded in the computation of Adjusted Net Worth and (b) deducting therefrom the net book amount of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under generally accepted accounting principles. Consumer Products Group: the Consumer Products Group of the Company, consisting of its business of manufacturing and marketing writing supplies and art supplies. Credit Agreement: collectively, (a) the Amended and Restated Revolving Credit Loan and Security Agreement, dated July 10, 1996, (b) the Amended and Restated Term Loan Agreement, dated July 10, 1996, in each case among the Company, First Union Commercial Corporation, as Agent, and the lenders named therein, as amended or restated on the Closing Date and as amended or restated from time to time thereafter and (c) the "Letter of Credit Agreements" as such term is defined in the agreement referred to in the foregoing clause (a). Debt: as applied to any Person (without duplication): (a) any indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed; and (b) any indebtedness secured by any Lien in respect of property owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness; and (c) any indebtedness with respect to which such Person has become directly or indirectly liable and which represents or has been incurred to finance the purchase price (or a portion thereof) of any property or services or business acquired by such Person, whether by purchase, consolidation, merger or otherwise; and (d) any indebtedness of any other Person of the character referred to in subdivision (a), (b) or (c) of this definition with respect to which the Person whose Debt is being determined has become liable by way of a Guaranty. 39 Disqualified Stock: (a) any capital stock of the Company or any Subsidiary that, by its terms, matures, or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder or holders thereof, in whole or in part on or prior to the date of final maturity of the Notes, (b) any Preferred Stock of any Subsidiary, and (c) any capital stock of the Company or any Subsidiary which is convertible into or exchangeable for any stock described in clauses (a) and (b) above. Dixon Mexico: Dixon Ticonderoga Company de Mexico, S.A. de C.V., a corporation organized under the laws of Mexico. ECRA Decision: the decision, dated April 24, 1996, of the Superior Court of New Jersey in Hudson County finding the Company responsible for certain environmental clean-up costs and related obligations aggregating approximately $3,300,000. Environmental Laws: Federal, state, provincial, local and foreign laws, rules and regulations relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes. ERISA: the Employee Retirement Income Security Act of 1974, as amended from time to time. Exchange Act: the Securities Exchange Act of 1934, as amended from time to time. Excess Sale Proceeds: as of any date of determination, the excess of (a) the proceeds of sales of assets of the Company and its Subsidiaries which are required to be applied to the prepayment of Debt of the Company pursuant to section 10.8(c)(iv)(y), over (b) the amount of Superior Debt of the Company outstanding as of such date and required to be prepaid pursuant to a provision of the agreement or instrument evidencing such Superior Debt similar in effect to section 10.8 hereof. Event of Default: the meaning specified in section 11. Fair Market Value: with respect to any sale of assets of the Company or any of its Subsidiaries pursuant to section 10.8(c), the fair market value of the assets to be sold (a) in the case of any asset sale involving consideration of $5,000,000 or less, as determined in good faith by the Board and evidenced by a resolution filed with the minutes of the meeting of the Board and (b) in the case of any asset sale involving consideration of more than $5,000,000, as determined by an investment banking or accounting firm of national standing selected by the Company. 40 Guaranty: as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaran- teed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of any Guaranty shall be equal to the outstanding principal amount of the obligation guaranteed. For the purposes of section 10.4, the amount involved in any Guaranty which con- stitutes a Restricted Investment made during any period shall be the aggregate amount of the obligation guaranteed, less any amount by which the guarantor may have been discharged with respect thereto (including any discharge by way of a reduction in the amount of the obligation guaranteed), provided that the guarantor shall not be deemed to have been discharged with respect to any Guaranty to the extent the guarantor shall have been required to perform such Guaranty (except to the extent that any loss on such Guaranty has been recognized in reducing Consolidated Net Income). Guaranty Agreement: the Guaranty Agreement, dated as of September 26, 1996, executed and delivered by the Subsidiaries of the Company, substantially in the form of Exhibit D. Interest Expense: as applied to any Person with reference to any period, interest expense of such Person for such period, including amortization of debt discount and expense and imputed interest on Capital Lease Obligations properly chargeable to income during such period in accordance with generally accepted accounting principles. Investment: as applied to any Person, any direct or indirect purchase or other acquisition by such Person of stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by such Person to any other Person, including all Debt and accounts receivable from such other Person which are not current assets or did not arise from sales to such other Person in the ordinary course of business. In computing the amount involved in any Investment at the time outstanding, (a) undistributed earnings of, and interest accrued in respect of Debt owing by, such other Person accrued after the date of such Investment shall not be included, (b) there shall not be deducted from the amounts invested in such other Person any amounts received as earnings (in the form of dividends, interest or otherwise) on such 41 Investment or as loans from such other Person, and (c) unrealized increases or decreases in value, or write-ups, write-downs or write-offs, of Investments in such other Person shall be disregarded. Lien: as to any Person, any mortgage, lien, pledge, adverse claim, charge, security interest or other encumbrance in or on, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease with respect to, any property or asset owned or held by such Person, or the signing or filing of a financing statement which names such Person as debtor, or the signing of any security agreement authorizing any other party as the secured party thereunder to file any financing statement. Make-Whole Premium: with respect to any Note, a premium equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (a) such Called Principal plus (b) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Make-Whole Premium shall in no event be less than zero. As used in this definition, the following terms have the following meanings: Called Principal: with respect to any Note, the principal of such Note that is to be prepaid, subject to a Make-Whole Premium, pursuant to section 9.2 or 9.3 or is declared to be immediately due and payable pursuant to section 11, as the context requires. Discounted Value: with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a semiannual basis) equal to the Reinvestment Yield with respect to such Called Principal. Reinvestment Yield: with respect to the Called Principal of any Note, the sum of (a) 1.0% plus (b) the yield to maturity determined by reference to the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or, if such Statistical Release is not published, any publicly available source of similar market data acceptable to the holders of more than 50% in principal amount of the Notes being prepaid or accelerated) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, (x) by converting U.S. Treasury bill quotations to bond- equivalent yields in accordance with accepted financial practice and (y) by linear interpolation between reported yields. 42 Remaining Average Life: with respect to the Called Principal of any Note, the number of years (calculated to the nearest one- twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (ii) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. Remaining Scheduled Payments: with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. Settlement Date: with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to section 9.2 or 9.3 or is declared to be immediately due and payable pursuant to section 11, as the context requires. Minority EBIT: for any Reference Period, the product of (a) the ownership percentage of all Persons, other than the Company and any Subsidiary, of the outstanding shares of Dixon Mexico times (b) the net income (or deficit) of Dixon Mexico for such Reference Period (taken as a cumulative whole), after deducting all operating expenses, provisions for all taxes and reserves and all other proper deductions, all determined in accordance with generally accepted accounting principles on a consolidated basis, (i) adjusted by adding thereto Interest Expense and income taxes deducted in the calculation of the net income of Dixon Mexico for such Reference Period, and (ii) further adjusted by excluding therefrom all extraordinary gains and losses and all other extraordinary or non-recurring items (in each case as determined in accordance with generally accepted accounting principles), provided, that all items under clause (b) above shall be determined in accordance with United States generally accepted accounting principles and shall be denominated in U.S. dollars. Multiemployer Plan: any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). Officers' Certificate: a certificate executed on behalf of the Company by the Chairman of the Board of Directors (if an officer) or its President or one of its Vice Presidents. Operative Agreements: the Warrants and the Guaranty Agreement. Option Plan: the employee stock option plan adopted by the Company providing for the grant to employees of the Company and its Subsidiaries from time to time of options to purchase shares of Common Stock not in excess of 20% of the number of shares of Common Stock issued and outstanding on the Closing Date. PBGC: the Pension Benefit Guaranty Corporation or any governmental authority succeeding to any of its functions. 43 Permitted Subordinated Debt: unsecured Debt of the Company or a Subsidiary which (a) does not permit any holder of such Debt to declare all or any part of such Debt to be due and payable, or to require (upon the occurrence of any contingency or otherwise) all or any part of such Debt to be paid, before its expressed maturity for any reason other than the occurrence of a default in respect thereof; and (b) is created under or evidenced by an instrument containing provisions for the subordination of such Debt either (i) on a parity with the Notes or (ii) on a basis that is junior and subordinate to the Notes at least to the extent the Notes are junior and subordinate in right of payment to Superior Debt. Person: a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. Plan: an "employee pension benefit plan" (as defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any of its Related Persons, or an employee pension benefit plan as to which the Company or any of its Related Persons would be treated as a contributory sponsor under section 4069 of ERISA if it were to be terminated. Potential Event of Default: any condition or event which, with notice or lapse of time or both, would become an Event of Default. Preferred Stock: as applied to any corporation, shares of such corporation which shall be entitled to preference or priority over any other shares of such corporation in respect of either the payment of dividends or the distribution of assets upon liquidation or both. Private Placement Memorandum: the Private Placement Memorandum prepared by Alex. Brown & Sons Incorporated for use in connection with the Company's private placement of the Notes and Warrants Public Offering: an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act such that, after giving effect to such offering, the Company shall have received gross proceeds from such public offering or offerings of at least $12,000,000. Reference Period: as of any date of determination, the four consecutive full fiscal quarters ended most recently prior to such date. Related Person: any trade or business, whether or not incorporated, which, together with the Company, is under common control, as described in section 414(b) or (c) of the Code. Restricted Investment: the meaning specified in section 10.3(h). Restricted Payment: (a) any declaration or payment of any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Company or any of its subsidiaries, now or hereafter outstanding, except a dividend payable solely in shares of stock of the Company; (b) any redemption, retirement, purchase or other acquisition, direct or indirect, of any shares of any class of 44 stock of the Company now or hereafter outstanding, or of any warrants, rights or options to acquire any such shares, except to the extent that the consideration therefor consists of shares of stock of the Company; (c) any payment, direct or indirect, of or on account of any principal of or premium on any Permitted Subordinated Debt now or hereafter outstanding or any redemption, retirement, purchase or other acquisition, direct or indirect, of any Permitted Subordinated Debt (except for any sinking fund, other required prepayment or mandatory installment or final payment at maturity pursuant to the provisions thereof and except for any payment consisting solely of shares of stock of the Company or of other Permitted Subordinated Debt). Securities Act: the Securities Act of 1933, as amended from time to time. Subordinated Debt: the meaning specified therefor in section 13.1. Subsidiary: any corporation or other business entity at least 50% (by number of votes) of the Voting Stock of which is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. Superior Debt: the meaning specified therefor in section 13.2. Voting Stock: with reference to any corporation, stock of any class or classes (or equivalent interests), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or Persons performing similar functions) of such corporation, even though the right so to vote has been suspended by the happening of such a contingency. Warrants: the meaning specified in section 1. Weighted Average Life to Maturity: as applied to any Debt at any date, the number of years obtained by dividing (a) the then outstanding principal amount of such Debt into (b) the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other regularly scheduled required payment, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the date on which such payment is to be made; as applied to any Preferred Stock at any date, the number of years obtained by dividing (x) the then liquidation value of such Preferred Stock into (y) the total of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund or other required redemption, including redemption at final maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such redemption. Wholly-Owned: as applied to any Subsidiary, a Subsidiary all the outstanding shares (other than directors' qualifying shares, if required by law) of every class of stock of which are at the time owned by the Company or by one or more Wholly-Owned Subsidiaries or by the Company and one or more Wholly-Owned Subsidiaries. 45 15. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES; ACTION BY NOTEHOLDERS. 15.1. NOTE REGISTER; OWNERSHIP OF NOTES. The Company will keep at its principal office a register in which the Company will provide for the registration of Notes and the registration of transfers of Notes. The Company may treat the Person in whose name any Note is registered on such register as the owner thereof for the purpose of receiving payment of the principal of and the premium, if any, and interest on such Note and for all other purposes, whether or not such Note shall be overdue, and the Company shall not be affected by any notice to the contrary. All references in this Agreement to a "holder" of any Note shall mean the Person in whose name such Note is at the time registered on such register. 15.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note for registration of transfer or for exchange to the Company at its principal office, the Company at its expense will execute and deliver in exchange therefor a new Note or Notes in denominations of at least $500,000 (except one Note may be issued in a lesser principal amount if the unpaid principal amount of the surrendered Note is not evenly divisible by, or is less than $500,000), as requested by the holder or transferee, which aggregate the unpaid principal amount of such sur- rendered Note, registered as such holder or transferee may request, dated so that there will be no loss of interest on such surrendered Note and otherwise of like tenor. 15.3. REPLACEMENT OF NOTES. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction of any Note, upon delivery of an indemnity bond in such reasonable amount as the Company may determine (or, in the case of any Note held by you or another institutional holder or your or its nominee, of an indemnity agreement from you or such other holder) or, in the case of any such mutilation, upon the surrender of such Note for cancellation to the Company at its principal office, the Company at its expense will execute and deliver, in lieu thereof, a new Note in the unpaid principal amount of such lost, stolen, destroyed or mutilated Note, dated so that there will be no loss of interest on such Note and otherwise of like tenor. Any Note in lieu of which any such new Note has been so executed and delivered by the Company shall not be deemed to be an outstanding Note for any purpose of this Agreement. 15.4. NOTES HELD BY COMPANY, ETC., DEEMED NOT OUTSTANDING. For the purposes of determining whether the holders of the Notes of the requisite principal amount at the time outstanding have taken any action authorized by this Agreement with respect to the giving of consents or approvals or with respect to acceleration upon an Event of Default, any Notes directly or indirectly owned by the Company or any of its Subsidiaries or Affiliates shall be disregarded and deemed not to be outstanding. 16. PAYMENTS ON NOTES. 16.1. PLACE OF PAYMENT. Payments of principal, premium, if any, and interest becoming due and payable on the Notes shall be made at the principal office of The Chase Manhattan Bank, N.A., in the Borough of Manhattan, the City and State of New York, unless the Company, by written notice to each holder of any Notes, shall 46 designate the principal office of another bank or trust company in such Borough as such place of payment, in which case the principal office of such other bank or trust company shall thereafter be such place of payment. 16.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in section 16.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, premium, if any, and interest by the method and at the address specified for such purpose in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that any Note paid or prepaid in full shall be surrendered to the Company at its principal office or at the place of payment maintained by the Company pursuant to section 16.1 for cancellation. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to section 15.2. The Company will afford the benefits of this section 16.2 to any institutional investor which is the direct or indirect transferee of any Note purchased by you under this Agreement and which has made the same agreement relating to such Note as you have made in this section 16.2. 17. EXPENSES, ETC. Whether or not the transactions contemplated by this Agreement shall be consummated, the Company will pay all expenses in connection with such transactions and in connection with any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement or the Notes, including, without limitation: (a) the cost and expenses of preparing and reproducing this Agreement and the Notes, of furnishing all opinions by counsel for the Company (including any opinions requested by your special counsel as to any legal matter arising hereunder) and all certificates on behalf of the Company, and of the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with; (b) the cost of delivering to your principal office, insured to your satisfaction, the Notes sold to you hereunder and any Notes delivered to you upon any substitution of Notes pursuant to section 15 and of your delivering any Notes, insured to your satisfaction, upon any such substitution; (c) the reasonable fees, expenses and disbursements of one special counsel for the holders of the Notes (and, in addition, any local counsel determined by the holders of the Notes to be necessary in the circumstances) in connection with such transactions and any such amendments or waivers; and (d) the reasonable out-of-pocket expenses incurred by you in connection with such transactions and any such amendments or waivers. The Company also will pay, and will save you and each holder of any Notes harmless from, all claims in respect of the fees, if any, of brokers and finders and any and all liabilities with respect to any taxes (including interest and penalties) which may be payable in respect of the execution and delivery of this Agreement, the issue of the Notes and any amendment or waiver under or in respect of this Agreement or the Notes. The obligation of the Company under this section 17 shall survive any disposition or payment of the Notes and the termination of this Agreement. 47 18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by you or on your behalf, the purchase of the Notes by you under this Agreement and any disposition or payment of the Notes. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement or in connection with the transactions contemplated by this Agreement shall be deemed representations and warranties of the Company under this Agreement. 19. AMENDMENTS AND WAIVERS. Any term of this Agreement or of the Notes may be amended and the observance of any term of this Agreement or of the Notes may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of at least 66.7% in principal amount of the Notes at the time outstanding (subject to section 15.4), provided that, without the prior written consent of the holders of all the Notes at the time outstanding (subject to section 15.4), no such amendment or waiver shall (a) change the maturity or the principal amount of, or reduce the rate or change the time of payment of interest on, or change the amount or the time of payment of any principal or premium payable on any prepayment of, any Note, (b) reduce the aforesaid percentages of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, (c) change the percentage of the principal amount of the Notes the holders of which may declare the Notes to be due and payable as provided in section 11, (d) modify the proviso to the first sentence of section 11, or (e) decrease the percentage of the principal amount of the Notes the holders of which may rescind and annul any such declaration as provided in section 11. Any amendment or waiver effected in accordance with this section 19 shall be binding upon each holder of any Note at the time outstanding, each future holder of any Note and the Company. 20. NOTICES, ETC. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered by hand or courier service, or mailed by registered or certified mail, return receipt requested, addressed, (a) if to you, at the address set forth in Schedule A or at such other address as you shall have furnished to the Company in writing, except as otherwise provided in section 16.2 with respect to payments on Notes held by you or your nominee, or (b) if to any other holder of any Note, at such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Note who has furnished an address to the Company, or (c) if to the Company, at its address set forth at the beginning of this Agreement, to the attention of Chief Financial Officer, or at such other address, or to the attention of such other officer, as the Company shall have furnished to you and each such other holder in writing. Any notice so addressed and delivered by hand or courier shall be deemed to be given when received, and any notice so addressed and mailed by registered or certified mail shall be deemed to be given three business days after being so mailed. 48 21. SUBMISSION TO JURISDICTION. The Company, for itself and its successors and assigns, hereby irrevocably (a) agrees that any legal or equitable action, suit or proceeding against the Company arising out of or relating to this Agreement or any transaction contemplated hereby or the subject matter of any of the foregoing may be instituted in any state or federal court in the State of New York, (b) waives any objection which it may now or hereafter have to the venue of any action, suit or proceeding, and (c) irrevocably submits itself to the nonexclusive jurisdiction of any state or federal court of competent jurisdiction in the State of New York for purposes of any such action, suit or proceeding. Nothing contained in this section 21 shall be deemed to affect the rights of the Purchasers or any subsequent holder of a Note to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any jurisdiction. 22. MISCELLANEOUS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by any holder or holders at the time of the Notes or any part thereof. Except as stated in section 18, this Agreement embodies the entire agreement and understanding between you and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement and the Notes shall be construed and enforced in accordance with and governed by the law of the State of New York. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterparts of this letter and return one of the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, DIXON TICONDEROGA COMPANY By: /s/ Richard A. Asta ---------------------------- Richard A. Asta Title: EVP & Chief Financial Officer 49 The foregoing Agreement is hereby agreed to as of the date thereof. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ U. Peter Gummeson ------------------------- U. Peter Gummeson Title: Investment Officer JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: /s/ Dana Donovan ------------------------- Dana Donovan Title: Senior Investment Officer SIGNATURE 1A (CAYMAN), LTD. By: John Hancock Mutual Life Insurance Company, Portfolio Advisor By: /s/ Dana Donovan ------------------------- Dana Donovan Title: Senior Investment Officer EX-10 5 COMMON STOCK PURCHASE WARRANT AGR ========================================================================= DIXON TICONDEROGA COMPANY ------------------------------ COMMON STOCK PURCHASE WARRANT ------------------------------ Expiring September 26, 2003 ========================================================================== i TABLE OF CONTENTS 1. Exercise of Warrant . . . . . . . . . . . . . . . . . . . . .1 1.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . .1 1.2. When Exercise Deemed Effected. . . . . . . . . . . . . . .2 1.3. Delivery of Stock Certificates, etc. . . . . . . . . . . .2 1.4. Company to Reaffirm Obligations. . . . . . . . . . . . . .2 1.5. Payment by Application of the Notes. . . . . . . . . . . .3 2. Adjustment of Common Stock Issuable Upon Exercise.. . . . . .3 2.1. Number of Shares; Warrant Price. . . . . . . . . . . . . .3 2.2. Adjustment of Warrant Price. . . . . . . . . . . . . . . .3 2.2.1. Issuance of Additional Shares of Common Stock. . . . .3 2.2.2. Extraordinary Dividends and Distributions . . . . . . .4 2.3. Treatment of Options and Convertible Securities. . . . . .4 2.4. Treatment of Stock Dividends, Stock Splits, etc. . . . . .6 2.5. Computation of Consideration . . . . . . . . . . . . . . .6 2.6. Adjustments for Combinations, etc. . . . . . . . . . . . .8 2.7. Dilution in Case of Other Securities . . . . . . . . . . .8 2.8. Minimum Adjustment of Warrant Price. . . . . . . . . . . .8 2.9. Special Adjustment of Warrant Price. . . . . . . . . . . .8 3. Consolidation, Merger, Sale of Assets, Reorganization, etc.. . . . . . . . . . . . . . . . . . . . .9 3.1. General Provisions . . . . . . . . . . . . . . . . . . . .9 3.2. Assumption of Obligations. . . . . . . . . . . . . . . . 10 4. Other Dilutive Events . . . . . . . . . . . . . . . . . . . 11 5. No Dilution or Impairment . . . . . . . . . . . . . . . . . 11 6. Accountants' Report as to Adjustments . . . . . . . . . . . 12 7. Notices of Corporate Action . . . . . . . . . . . . . . . . 12 8. Restrictions on Transfer. . . . . . . . . . . . . . . . . . 13 8.1. Restrictive Legends. . . . . . . . . . . . . . . . . . . 13 8.2. Notice of Proposed Transfer; Opinions of Counsel . . . . 13 8.3. Termination of Restrictions. . . . . . . . . . . . . . . 14 9. Registration under Securities Act, etc. . . . . . . . . . . 14 9.1. Maintenance of Effective Registration. . . . . . . . . . 14 9.2. Incidental Registration. . . . . . . . . . . . . . . . . 15 9.3. Registration Procedures. . . . . . . . . . . . . . . . . 16 9.4. Underwritten Offerings . . . . . . . . . . . . . . . . . 19 9.5. Preparation; Reasonable Investigation. . . . . . . . . . 21 9.6. Certain Rights of Holders. . . . . . . . . . . . . . . . 21 9.7. Indemnification. . . . . . . . . . . . . . . . . . . . . 21 9.8. Adjustments Affecting Registrable Securities . . . . . . 23 9.10. Covenants Relating to Rule 144 . . . . . . . . . . . . . 24 10. Availability of Information. . . . . . . . . . . . . . . . 24 11. Reservation of Stock, etc. . . . . . . . . . . . . . . . . 24 ii 12. Listing on Securities Exchange . . . . . . . . . . . . . . 24 13. Ownership, Transfer and Substitution of Warrants . . . . . 25 13.1. Ownership of Warrants. . . . . . . . . . . . . . . . . . 25 13.2. Transfer and Exchange of Warrants. . . . . . . . . . . . 25 13.3. Replacement of Warrants. . . . . . . . . . . . . . . . . 25 14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 25 15. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 30 16. No Rights or Liabilities as Stockholder . . . . . . . . . . 30 17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 30 18. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 31 19. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . 31 Form of Subscription Form of Notice 1 Common Stock Purchase Warrant Expiring September 26, 2003 New York, New York ____________, 19__ PPN#255860 2#4 No. W- DIXON TICONDEROGA COMPANY, a Delaware corporation (the "Company"), for value received, hereby certifies that ___________________ or registered assigns, is entitled to purchase from the Company ______ duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, par value $1.00 per share, of the Company (the "Common Stock") at the purchase price per share of $7.24, at any time or from time to time on or after the Initial Exercise Date and prior to 3 P.M., New York City time, on September 26, 2003 (or such later date as may be determined pursuant to section 20), all subject to the terms, conditions and adjustments set forth below in this Warrant. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants", such term to include all Warrants issued in substitution therefor) originally issued in connection with the issue and sale by the Company of $16,500,000 aggregate principal amount of its 12.00% Notes due September 26, 2003 (together with all notes issued in substitution therefor, the "Notes"), pursuant to the Note and Warrant Purchase Agreements (collectively, the "Purchase Agreement"), each dated as of September 26, 1996, between the Company and the institutional investors named therein. The Warrants originally so issued evidence rights to purchase an aggregate of 300,000 shares of Common Stock, subject to adjustment as provided herein. Certain capitalized terms used in this Warrant are defined in section 14. 1. EXERCISE OF WARRANT. 1.1. MANNER OF EXERICSE. This Warrant may be exercised by the holder hereof, in whole or in part, during normal business hours on any Business Day by surrender of this Warrant, with the form of subscription at the end hereof (or a reasonable facsimile thereof) duly executed by such holder, to the Company at its principal office (or, if such exercise shall be in connection with an underwritten Public Offering of shares of Common Stock (or Other Securities) subject to this Warrant, at the location at which the Company shall have agreed to deliver the shares of Common Stock (or Other Securities) subject to such offering), accompanied by payment, in cash or by certified or official bank check payable to the order of the company or by the application of Notes in the manner provided in section 1.5 (or by any combination of such methods), in the amount obtained by multiplying (a) the number of shares of Common Stock (without giving effect to any adjustment therein) designated in such form of subscription by (b) $7.24 and such holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in sections 2 through 4. 2 1.2. WHEN EXERCISE DEEMED EFFECTED. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in section 1.1, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such exercise as provided in section 1.3 shall be deemed to have become the holder or holders of record thereof. 1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after the exercise of this Warrant, in whole or in part, and in any event within ten Business Days thereafter (unless such exercise shall be in connection with an underwritten Public Offering of shares of Common Stock (or Other Securities) subject to this Warrant, in which event concurrently with such exercise), the Company at its expense (including the payment by it of any applicable stamp or document taxes) will cause to be issued in the name of and delivered to the holder hereof or, subject to section 8, as such holder (upon payment by such holder of any applicable transfer taxes) may direct, (a) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash in an amount equal to the same fraction of the Market Price per share of such Common Stock (or Other Securities) on the Business Day next preceding the date of such exercise, and (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the holder upon such exercise as provided in section 1.1. 1.4. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the holder hereof or of any shares of Common Stock (or Other Securities) issued upon such exercise, acknowledge in writing its continuing obligation to afford to such holder all rights (including, without limitation, any right of registration of any shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant pur- suant to section 9) to which such holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such holder. 3 1.5. PAYMENT BY APPLICATION OF THE NOTES. Upon any exercise of this Warrant, the holder hereof may, at its option, instruct the Company, by so specifying in the form of subscription submitted therewith as provided in section 1.1, to apply to the payment required by section 1.1 all or any part of the principal amount then due and of the interest on such principal amount then due on any one or more Notes at the time held by such holder, in which case the Company will accept the aggregate amount of principal and interest on such principal specified in such form of subscription in satisfaction of a like amount of such payment. In case less than the entire unpaid principal amount of any Note shall be so specified, the principal amount so specified shall be credited, as of the date of such exercise, against the installments of principal then remaining unpaid on such Note either in the inverse order of their maturity dates or in the direct order of their maturity dates as such holder shall instruct in such form of subscription. Within five days after receipt of any such notice, the Company will pay to the holder of the Notes submitting such form of subscription, in the manner provided in such Notes and the Purchase Agreement, all unpaid interest accrued to the date of exercise of such Warrant on the principal amount so specified in such form of subscription that is not applied to the payment required by section 1.1 under this section 1.5. 2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERICSE. 2.1. NUMBER OF SHARES; WARRANT PRICE. The number of shares of Common Stock which the holder of this Warrant shall be entitled to receive upon each exercise hereof shall be determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this section 2) be issuable upon such exercise, as designated by the holder hereof pursuant to section 1.1, by a fraction of which (i) the numerator is $7.24 and (ii) the denominator is the Warrant Price in effect on the date of such exercise. The "Warrant Price" shall initially be $7.24 per share, shall be adjusted and readjusted from time to time as provided in this section 2 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this section 2. 2.2. ADJUSTMENT OF WARRANT PRICE. 2.2.1. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the Company, at any time or from time to time after September 26, 1996 (the "Initial Date"), shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to section 2.3 or 2.4) without consideration or for a consideration per share less than the Base Price in effect, in each case, on the date of and immediately prior to such issue or sale, then, and in each such case, subject to section 2.8, such Warrant Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Price by a fraction, (a) the numerator of which shall be (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (ii) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at the Base Price, and (b) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, 4 PROVIDED that, for the purposes of this section 2.2.1, (x) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding, and (y) treasury shares shall not be deemed to be outstanding. 2.2.2. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case the Company at any time or from time to time after the Initial Date shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on any Common Stock, other than (a) a dividend payable in Additional Shares of Common Stock or in Options for Common Stock or (b) a regular, periodic dividend payable in cash and declared out of the earned surplus of the Company as at the date thereof as increased by any credits (other than credits resulting from a revaluation of property) and decreased by any debits made thereto after such date, then, and in each such case, subject to section 2.8, the Warrant Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Price by a fraction, (i) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex- dividend trading, less the value of such dividend or distribution (as determined in good faith by the Board of Directors of the Company) applicable to one share of Common Stock, and (ii) the denominator of which shall be such Current Market Price. 2.3. TREATMENT OF OPTIONS AND COVERTIBLE SECURITIES. In case the Company at any time or from time to time after the Initial Date shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to, any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issued for purposes of section 2.2.1 as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), provided that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to section 2.5) of such shares would be less than the Base Price in effect, in each case, on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be, 5 and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued, (a) no further adjustment of the Warrant Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effec- tive, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Warrant Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options for Common Stock or of Convertible Securities, the only Additional Shares of Common Stock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was (x) an amount equal to (A) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (B) the consideration actually received by the Company upon such exercise, minus (C) the consideration paid by the Company for any purchase of such Options which were not exercised, or (y) an amount equal to (A) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Convertible Securities which were actually converted or exchanged, plus (B) the additional consideration, if any, actually received by the Company upon such conversion or exchange, minus (C) the consideration paid by the Company for any purchase of such Convertible Securities the rights of conversion or exchange under which were not exercised, and 6 (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was an amount equal to (x) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (y) the consideration deemed to have been received by the Company (pursuant to section 2.5) upon the issue or sale of the Convertible Securities with respect to which such Options were actually exercised, minus (z) the consideration paid by the Company for any purchase of such Options which were not exercised; (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the Warrant Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. In case at any time after the Initial Date the Company shall be required to increase the number of Additional Shares of Common Stock subject to any Option or into which any Convertible Securities (other than the Warrants) are convertible or exchangeable pursuant to the operation of anti-dilution provisions applicable thereto, such Additional Shares shall be deemed to be issued for purposes of section 2.1 as of the time of such increase. 2.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the Company at any time or from time to time after the Initial Date shall declare or pay any dividend or other distribution on any class of stock of the Company payable in Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued (a) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (b) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such corporate action becomes effective. 2.5. COMPUTATION OF CONSIDERATION. For the purposes of this section 2: (a) The consideration for the issue or sale of any Additional Shares of Common Stock or for the issue, sale, grant or assumption of any Options or Convertible Securities, irrespective of the accounting treatment of such consideration, shall 7 (i) insofar as it consists of cash, be computed at the amount of cash received by the company, after deducting any expenses paid or incurred by the Company or any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, (ii) insofar as it consists of consideration (including securities) other than cash, be computed at the Fair Value thereof at the time of such issue or sale, after deducting any expenses paid or incurred by the Company for any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and (iii) in case Additional Shares of Common Stock are issued or sold or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, be the proportion of such consideration so received, computed as provided in subdivisions (i) and (ii) above, allocable to such Additional Shares of Common Stock or Convertible Securities, as the case may be, all as determined in good faith by the Board of Directors of the Company. (b) All Options issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, all Additional Shares of Common Stock, Options or Convertible Securities issued in payment of any dividend or other distribution on any class of stock of the Company and all Additional Shares of Common Stock issued to effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) shall be deemed to have been issued without consideration. (c) Additional Shares of Common Stock deemed to have been issued for consideration pursuant to section 2.3, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), 8 by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjust- ment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (d) Additional Shares of Common Stock issued or deemed to have been issued pursuant to the operation of anti-dilution provisions applicable to Convertible Securities (other than the Warrants), Options or other securities of the Company (either as a result of the adjustments provided for by the Warrants or otherwise) shall be deemed to have been issued without consideration. 2.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Warrant Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 2.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any stock (or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in section 3) or to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any such other issuer or Person) for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this section 2, the purchase rights granted by this Warrant, then, and in each such case, the computations, adjustments and readjustments provided for in this section 2 with respect to the Warrant Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 2.8. MINIMUM ADJUSTMENT OF WARRANT PRICE. If the amount of any adjustment of the Warrant Price required pursuant to this section 2 would be less than one one-hundredth (.01) of a cent, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one one-hundredth (.01) of a cent. 2.9. SPECIAL ADJUSTMENT OF WARRANT PRICE. If the Company shall fail to maintain the effective registration of Registrable Securities in accordance with section 9.1 of this Warrant (other than for reasons outside the Company's control), and such failure shall continue for a period of 30 days from (a) in the case of the registration required to be effected pursuant to section 9.1(a), November 15, 1997, or (b) in the case of such registration ceasing to remain in effect, the date thereof, the Warrant Price in effect at the time of such failure will, 9 effective on such 30th day, be reduced to an amount equal to 85% of the Warrant Price in effect on such 30th day. Thereafter, on each anniversary of such 30th day, if the Company's failure to comply with section 9.1 shall not have been cured, the Warrant Price shall be further reduced to an amount equal to 85% of the Warrant Price in effect on such anniversary date. The Warrant Price Adjustments provided for in this section 2.9 shall be without prejudice to any other right, power or remedy referred to herein or in the Purchase Agreement or now or hereafter available at law, in equity, by statute or otherwise. 3. CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC. 3.1. GENERAL PROVISIONS. In case the Company, after the Initial Date, (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, Common Stock or Other Securities shall be changed into or exchanged for cash, stock or other securities of any other Person or any other property, or (c) shall transfer all or substantially all of its properties and assets to any other Person, or (d) shall effect a capital reorganization or reclassification of Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the Warrant Price is provided in section 2.2.1 or 2.2.2), then, and in the case of each such transaction, the Company shall give written notice thereof to each holder of any Warrant not less than 30 days prior to the consummation thereof and proper provision shall be made so that, upon the basis and the terms and in the manner provided in this section 3, the holder of this Warrant, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive, at the aggregate Warrant Price in effect at the time of such consummation for all Common Stock (or Other Securities) issuable upon such exercise immediately prior to such consummation, in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, either of the following, as such holder shall elect by written notice to the Company on or before the date immediately preceding the date of the consummation of such transaction (and, in the absence of such notice, the provisions of subdivision (ii) below shall be deemed to have been elected by such holder): (i) the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder upon such consummation if such holder had exercised this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in section 2 and this section 3, provided that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of Common Stock under circumstances in which, upon completion of such purchase, tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the 10 outstanding shares of Common Stock, and if the holder of this Warrant so designates in such notice given to the Company, the holder of this Warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder if the holder of this Warrant had exercised this Warrant prior to the expiration of such purchase, tender or exchange offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such purchase, tender or exchange offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in section 2 and this section 3; or (ii) the number of shares of Voting Common Stock (or equivalent equity interests) of the Acquiring Person or, if the Acquiring Person fails to meet, but its Parent meets, the requirements set forth in the proviso below, of its Parent, subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in section 2 and this section 3, determined by dividing (x) the product obtained by multiplying (A) the number of shares of Common Stock (or Other Securities) to which the holder of this Warrant would have been entitled had such holder exercised this Warrant immediately prior to the consummation of such transaction, times (B) the greater of the Acquisition Price and the Warrant Price in effect on the date immediately preceding the date of such consummation, by (y) the Current Market Price per share of the Voting Common Stock (or equivalent equity interests) of the Acquiring Person or its Parent, as the case may be, on the date immediately preceding the date of such consummation; provided that the Company shall not effect any of the transactions described in subdivisions (a) through (d) above unless, immediately after the date of the consummation of such transaction, the Acquiring Person or its Parent is required to file, by virtue of having an outstanding class of Voting Common Stock (or equivalent equity interests), reports with the Commission pursuant to section 13 or section 15(d) of the Exchange Act, and such Voting Stock (or equivalent equity interest) is listed or admitted to trading on a national securities exchange or is quoted in the NASD automated quotation system. In the event that the Acquiring Person fulfills the requirements contained in the immediately preceding proviso, then, if the holder of this Warrant shall elect (or shall be deemed to elect) to receive Voting Common Stock (or equivalent equity interests) pursuant to subdivision (ii) above, such holder shall be entitled to receive, upon the basis stated in such subdivision (ii), only the Voting Common Stock (or equivalent equity interests) of the Acquiring Person. 3.2. ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained in this Warrant or the Purchase Agreement to the contrary, the Company will not effect any of the transactions described in subdivisions (a) through (d) of section 3.1 unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any cash, stock or other securities or other property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the holder of this Warrant, (a) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall 11 be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant) and (b) the obligation to deliver to such holder such cash, stock or other securities or other property as, in accordance with the foregoing provisions of this section 3, such holder may be entitled to receive, and such Person shall have similarly delivered to such holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such holder, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of section 2 and this section 3) shall be applicable to the cash, stock or other securities or other property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto. Nothing in this section 3 or in section 7 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by the Purchase Agreement. 4. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the provisions of section 2 or section 3 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such sections, then, in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in sections 2 and 3, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion the Company will promptly mail a copy thereof to the holder of this Warrant and shall make the adjustments described therein. 5. NO DILUTION OF IMPAIRMENT. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, and, if the Warrant Price in effect at any time shall be reduced to such par value, the Company will promptly cause the par value of such shares to be reduced to $0.01, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action which results in any adjustment of the Warrant Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise and, (d) will not issue any capital stock of any class which has the right to more than one vote per share or which is preferred as to dividends or as to the distribution of assets upon 12 voluntary or involuntary dissolution, liquidation or winding- up, unless such stock is sold for a cash consideration at least equal to the amount of its preference upon voluntary or involuntary dissolution, liquidation or winding-up and the rights of the holders thereof shall be limited to a fixed percentage (not exceeding 15%) of such cash consideration in respect of participation in dividends. 6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. (a) In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable upon the exercise of the Warrants, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of the Warrants and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjust- ment or readjustment is based, including without limitation a statement of (i) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (ii) the number of shares of Common Stock outstanding or deemed to be outstanding, and (iii) the Warrant Price in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by section 2) on account thereof. The Company will forthwith mail a copy of each such report to each holder of a Warrant. Any holder of a Warrant may notify the Company in writing within ten days following receipt of any such report that it disagrees with the Company's computation of such adjustment or readjustment, and may request the Company to cause independent public accountants of recognized national standing selected by the Company (which may be the regular auditors of the Company), at the Company's expense, to verify such computation and prepare a report setting forth the information required to be set forth in the Company's report. (b) The Company will, upon the written request at any time of any holder of a Warrant, furnish to such holder a report setting forth the Warrant Price at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all reports prepared pursuant to subdivision (a) and (b) of this section 6 at its principal office and will cause the same to be available for inspection at such office during normal business hours by any holder of a Warrant or any prospective purchaser of a Warrant designated by the holder thereof. 7. NOTICES OF CORPORATE ACTION. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a regular periodic dividend payable in cash out of earned surplus) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, 13 the Company will mail to each holder of a Warrant a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date therein specified, in the case of any date referred to in the foregoing subdivision (i), and at least 90 days prior to the date therein specified, in the case of the date referred to in the foregoing subdivision (ii). 8. RESTRICTIONS ON TRANSFER. 8.1. RESTRICTIVE LEGENDS. Except as otherwise permitted by this section 8, each Warrant originally issued pursuant to the Purchase Agreement and each Warrant issued upon direct or indirect transfer or in substitution for any Warrant pursuant to section 13 shall be stamped or otherwise imprinted with a legend in substantially the following form: "This Warrant and any shares acquired upon the exercise of this Warrant have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act." Except as otherwise permitted by this section 8, each certificate for Common Stock (or Other Securities) issued upon the exercise of any Warrant and each certificate issued upon the direct or indirect transfer of any such Common Stock (or Other Securities) shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act. Such shares are also subject to certain restrictions on transferability imposed by Common Stock Purchase Warrants expiring September 26, 2003, a copy of which is on file at the offices of the Company." 8.2. NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any transfer of any Restricted Securities which are not registered under an effective registration statement under the Securities Act (other than a transfer pursuant to Rule 144 or any comparable rule under such Act), the holder thereof will give written notice to the Company of such holder's intention to effect such transfer and to comply in all other respects with this section 8.2. Each such notice (a) shall describe the manner and circumstances of the proposed transfer in sufficient detail to enable counsel to render the opinions referred to below, and (b) shall designate counsel for the holder giving such notice (who may be in-house counsel for such holder). The holder giving such notice will submit a copy thereof to the counsel designated in such notice. The following provisions shall then apply: 14 (i) If in the opinion of counsel for the holder the proposed transfer may be effected without registration, such holder shall thereupon be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by such holder to the Company. Each Warrant or certificate, if any, issued upon or in connection with such transfer shall bear the appropriate restrictive legend set forth in section 8.1 unless, in the opinion of such counsel, such legend is no longer required to insure compliance with the Securities Act. (ii) If the opinion of such counsel for the holder is not to the effect that the proposed transfer may legally be effected without registration of such Restricted Securities under the Securities Act, such holder shall not be entitled to transfer such Restricted Securities (other than in a transfer pursuant to Rule 144 or any comparable rule under the Securities Act) until the conditions specified in subdivision (i) above shall be satisfied or until registration of such Restricted Securities under the Securities Act has become effective. Notwithstanding the foregoing provisions of this section 8.2, the holder of any Restricted Securities shall be permitted to transfer any such Restricted Securities pursuant to Rule 144A under the Securities Act, provided that each transferee agrees in writing to be bound by all the restrictions on transfer of such Restricted Securities contained in this section 8.2. The Company will pay the reasonable fees and disbursements of counsel (other than in-house counsel) for any holder of Restricted Securities and of counsel for the Company in connection with all opinions rendered by them pursuant to this section 8.2 and pursuant to section 8.3. 8.3. TERMINATION OF RESTRICTIONS. The restrictions imposed by this section 8 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities (a) when such securities shall have been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering such Restricted Securities, (b) when, in the opinions of both counsel for the holder thereof and counsel for the Company, such restrictions are no longer required in order to insure compliance with the Securities Act, or (c) when such securities have been beneficially owned, by a person who has not been an affiliate of the Company for at least three months, for a period of at least three years, all as determined under Rule 144 under the Securities Act. Whenever such restrictions shall terminate as to any Restricted Securities, as soon as practicable thereafter and in any event within five days, the holder thereof shall be entitled to receive from the Company, without expense (other than transfer taxes, if any), new securities of like tenor not bearing the applicable legend set forth in section 8.1 hereof. 9. REGISTRATION UNDER SECURITIES ACT, ETC. 9.1. MAINTENANCE OF EFFECTIVE REGISTRATION. (a) General. The Company agrees to prepare and file with the Commission not later than February 15, 1997, and upon the effectiveness thereof to maintain on a current basis and until the expiration of the Warrants in accordance with the terms thereof, a registration under the Securities Act of Registrable Securities so as to permit an offering thereof at other than a fixed price into an existing trading market on or through the facilities of a national securities 15 exchange or from time to time through one or more underwriters, including by means of a shelf registration pursuant to Rule 415 under the Securities Act. (b) Expenses. The Company will pay all Registration Expenses in connection with any registration effected pursuant to this section 9.1, except that the Company will pay the expense of obtaining "comfort" letters pursuant to subdivision (f)(ii) of section 9.3 only in the case of such letters delivered (i) on the effective date of any registration statement, (ii) on the closing date of any underwritten Public Offering and (iii) on the date of the first sale of Registrable Securities other than in an underwritten Public Offering. (c) Selection of Underwriters. If, in the discretion of the holders of a majority (by number of shares) of the Registrable Securities, any offering pursuant to this section 9.1 shall constitute an underwritten offering, the underwriter or underwriters thereof shall be selected, after consultation with the Company, by such holders and shall be acceptable to the Company, which shall not unreasonably withhold its acceptance of such underwriter or underwriters. 9.2. INCIDENTAL REGISTRATION. (a) Right to Include Registrable Securities. Notwithstanding any limitation contained in section 9.1, if the Company at any time proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or S-8 or any successor or similar forms), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will each such time give prompt written notice to all holders of Registrable Securities of its intention to do so and of such holders' rights under this section 9.2. Upon the written request of any such holder made within 20 days after receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, (a) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the Company's obligation to maintain registration under section 9.2, and (b) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this section 9.2 shall relieve the Company of its obligation to maintain the registration 16 required under section 9.1 except that the Company may de-register any Registrable Securities from the registration maintained pursuant to section 9.1 upon the disposal thereof in accordance with any such registration statement effected under this section 9.2. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this section 9.2. (b) Priority in Incidental Registrations. If a registration pursuant to this section 9.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration to the extent of the number which the Company is so advised can be sold in such offering securities determined as follows: (i) if such registration as initially proposed by the Company was solely a primary registration of its securities, (x) first, the securities proposed by the Company to be sold for its own account, (y) second, any Registrable Securities requested to be included in such registration, pro rata among the holders thereof requesting such registration on the basis of the number of shares of such securities requested to be included by such holders, and (z) third, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities, and (ii) if such registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than holders of Registrable Securities, pursuant to demand registration rights, (x) first, such securities held by the holders initiating such registration, pro rata among the holders thereof, on the basis of the number of shares of such securities requested to be included by such holders, (y) second, any Registrable Securities requested to be included in such registration, pro rata among the holders thereof requesting such registration on the basis of the number of shares of such securities requested to be included by such holders and (z) third, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities. 9.3. REGISTRATION PROCEDURES. If and whenever the Company is required to maintain effective on a current basis a registration statement under the Securities Act pertaining to any Registrable Securities as provided in sections 9.1 and 9.2, the Company will as expeditiously as possible: (a) prepare and file with the Commission the requisite registration statement (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) to effect such registration and use its best efforts to cause such registration statement to become effective, provided that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel 17 selected by the holders of Registrable Securities whose Registrable Securities are to be included in such registration copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel, and provided, further, that the Company may discontinue any registration of its securities which are not Registrable Securities at any time prior to the effective date of the registration statement relating thereto; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effec- tiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement or, in the case of any registration maintained pursuant to section 9.1, the expiration of the Warrants in accordance with the terms thereof or, in the case of any registration pursuant to section 9.2, 90 days after such registration statement becomes effective, provided that if less than all the Registrable Securities are withdrawn from registration after the relevant period, the shares to be so withdrawn shall be allocated pro rata among the holders thereof on the basis of the respective numbers of Registrable Securities held by them included in such registration; (c) furnish to each seller of Registrable Securities covered by such registration statement (and each Requesting Holder) such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request; (d) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each seller thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; 18 (e) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (f) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller (and the underwriters, if any), of (i) an opinion of counsel for the Company, dated the effective date of such registration statement and dated the date of any closing of any sale of Registrable Securities, reasonably satisfactory in form and substance to such seller, and (ii) a "comfort" letter, dated the effective date of such registration statement and dated the date of any closing of any sale of Registrable Securities, signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are cus- tomarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as such seller (or the under- writers, if any) may reasonably request; (g) notify each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such holder promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (h) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such 19 registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such registration statement or prospectus to which any such seller shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder, having been furnished with a copy thereof at least five business days prior to the filing thereof; (i) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and (j) use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed. The Company may require each holder of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing. Each holder of Registrable Securities agrees by the acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in subdivision (g) of this section 9.3, such holder will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (g) of this section 9.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the periods referred to in sub- division (b) of this section 9.3 shall be extended by a number of days equal to the number of days during the period from and including the giving of notice pursuant to subdivision (g) of this section 9.3 and including the date when each seller of any Registrable Securities covered by such registration statement shall receive the copies of the supplemented or amended prospectus contemplated by subdivision (g) of this section 9.3. 9.4. UNDERWRITTEN OFFERINGS. (a) Requested Underwritten Offerings. If requested by the underwriters for any underwritten offering by holders of Registrable Securities pursuant to the registration maintained under section 9.1, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to each such holder, the underwriters and the Company and to contain such representations and warranties by the Company and such other terms as are customarily contained in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in section 9.7. The holders of Registrable Securities to be distributed by such underwriters 20 shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representa- tions, warranties or agreements regarding such holder and such holder's intended method of distribution and any other representation required by law. (b) Incidental Underwritten offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by section 9.2 and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of section 9.2(b), use its best efforts, if requested by any holder of Registrable Securities, to arrange for such underwriters to include the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters. The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such holders of Registrable Securities. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and such holder's intended method of distribution and any other representation required by law. (c) Holdback Agreements. (i) Each holder of Registrable Securities agrees by acquisition of such Registrable Securities, if so required by the managing underwriter, not to effect any public sale or distribution of such securities during the seven days prior to and the 90 days after the closing of any underwritten registration pursuant to section 9.1 or any underwritten registration pursuant to section 9.2 has become effective, or, if the managing underwriter advises the Company in writing that, in its opinion, no such public sale or distribution should be effected for a specified period longer than 90 days after such underwritten registration in order to complete the sale and distribution of securities included in such registration and the Company gives notice to such holder of Registrable Securities of such advice, during a reasonable longer period after such underwritten registration, except as part of such underwritten registration, whether or not such holder par- ticipates in such registration. 21 (ii) The Company agrees (x) not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven days prior to and the 90 days after the closing of any underwritten registration pursuant to section 9.2 or any underwritten registration pursuant to section 9.2 has become effective, except as part of such underwritten registration and except pursuant to registrations on Form S- 4 or S-8 or any successor or similar forms thereto, and (y) to cause each holder of its equity securities or of any securities convertible into or exchangeable or exercisable for any of such securities, in each case purchased from the Company at any time after the date of this Agreement (other than in a Public Offering), to agree not to effect any such public sale or distribution of such securities, during such period, or, in either case, if the managing underwriter advises the Company in writing that, in its opinion, no such public sale or distribution should be effected for a specified period longer than 90 days after such underwritten registration in order to complete the sale and distribution of securities included in such registration, during a reasonable longer period after such underwritten registration, except as part of such underwritten registration. 9.5. PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act, the Company will give the holders of Registrable Securities registered under such registration statement, their underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 9.6. CERTAIN RIGHTS OF HOLDERS. The Company will not file any registration statement under the Securities Act which refers to any holder of any Notes or Registrable Securities by name or otherwise as the holder of any securities of the Company, unless it shall first have given to such holder the right to require (a) the insertion therein of language, in form and substance satisfactory to such holder, to the effect that the holding by such holder of such securities does not make such holder a "controlling person" of the Company within the meaning of the Securities Act and is not to be construed as a recommendation by such holder of the investment quality of the Company's debt or equity securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (b) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any rules and regulations promulgated thereunder, the deletion of the reference to such holder. 9.7. INDEMNIFICATION. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does, indemnify and hold harmless the seller of Registrable Securities covered by any registration 22 statement filed pursuant to section 9.1 or 9.2, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls any such seller or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller or any such director or officer or underwriter or controlling Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such seller and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that with respect to any seller the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation thereof, and, provided, further, that the Company shall not be liable to any Person who participates as an underwriter, in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such seller. (b) Indemnification by the Sellers. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to section 9.3, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this section 9.7) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement 23 thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, provided that such seller's obligations hereunder shall be limited to an amount equal to the proceeds to such holder of the Registrable Securities sold pursuant to such registration statement. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this section 9.7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this section 9.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall consent to entry of any judgment or enter into any settlement without the consent of the indemnified party which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this section 9.7 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (e) Indemnification Payments. The indemnification required by this section 9.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. 9.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in any registration of its securities contemplated by this section 9 or the marketability of such Registrable Securities under any such registration. 24 9.10. COVENANTS RELATING TO RULE 144. The Company will file reports in compliance with the Exchange Act and will, at its expense, forthwith upon the request of any holder of Restricted Securities, deliver to such holder a certificate, signed by the Company's principal financial officer, stating (a) the Company's name, address and telephone number, (b) the Company's Internal Revenue Service identification number, (c) the Company's Commission file number, (d) the number of shares of Common Stock of the Company outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least 90 days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. If at any time the Company is not required to file reports in compliance with either section 13 or section 15(d) of the Exchange Act, the Company at its expense will, forthwith upon the written request of the holder of any Restricted securities, make available adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144 of the General Rules and Regulations promulgated under the Securities Act. 10. AVAILABILITY OF INFORMATION. The Company will cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will furnish to each holder of any Warrants, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, and copies of all regular and periodic reports and all registration statements and prospectuses filed by the Company with any securities exchange or with the commission. 11. RESERVATION OF STOCK, ETC. The Company will at all times reserve and keep available, solely for issuance and delivery upon exercise of the Warrants, the number of shares of Common Stock (or Other Securities) from time to time issuable upon exercise of all Warrants at the time outstanding. All shares of Common Stock (or Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof. 12. LISTING ON SECURITIES EXCHANGE. The Company will list on each national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon exercise of the Warrants, and will maintain such listing of, all shares of Common Stock from time to time issuable upon exercise of the Warrants. The Company will also so list on each national securities exchange, and will maintain such listing of, any other securities if at the time any securities of the same class shall be listed on such national securities exchange by the Company. 25 13. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 13.1. OWNERSHIP OF WARRANTS. The Company may treat the person in whose name any Warrant is registered on the register kept at the principal office of the Company as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the contrary. Subject to section 8, a Warrant, if properly assigned, may be exercised by a new holder without first having a new Warrant issued. 13.2. TRANSFER AND EXCHANGE OF WARRANTS. Upon the surrender of any Warrant, properly endorsed, for registration of transfer or for exchange at the principal office of the Company, the Company at its expense will (subject to compliance with section 8, if applicable) execute and deliver to or upon the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 13.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant held by a Person other than any institutional investor, upon delivery of indemnity reasonably satisfactory to the Company in form and amount or, in the case of any such mutilation, upon surrender of such Warrant for cancellation at the principal office of the Company, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 14. DEFINITIONS. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Acquiring Person: the continuing or surviving corporation of a consolidation or merger with the Company (if other than the Company), the transferee of substantially all of the properties and assets of the Company, the corporation consolidating with or merging into the Company in a consolidation or merger in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, or, in the case of a capital reor- ganization or reclassification, the Company. Acquisition Price: as applied to the Common Stock, with respect to any transaction to which section 3 applies, (a) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the date of consummation of such transaction: (i) the Market Price of the Common Stock and (ii) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would have been entitled as a shareholder to receive upon such consummation if such holder had exercised this Warrant immediately prior thereto, or (b) if a purchase, tender or an exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than 50% of the outstanding 26 shares of Common Stock, the greater of (i) the price determined in accordance with the foregoing, subdivision (a) and (ii) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the acceptance of such offer by the holders of more than 50% of the outstanding shares of Common Stock: (x) the Market Price of the Common Stock and (y) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would be entitled as a shareholder to receive pursuant to such offer if such holder had exercised this Warrant immediately prior to the expiration of such offer and accepted the same. Additional Shares of Common Stock: all shares (including treasury shares) of Common Stock issued or sold (or, pursuant to section 2.3 or 2.4, deemed to be issued) by the Company after the Initial Date hereof, whether or not subsequently reacquired or retired by the Company, other than (a) shares of Common Stock issued upon the exercise of Warrants and (b) shares of Common Stock, not in excess of 20% the number of shares of Common Stock issued and outstanding on the Initial Date, issued upon the exercise of certain stock options granted from time to time to certain directors, officers and other employees of the Company and its Subsidiaries. Base Price: on any date specified herein, the greater of (i) the Current Market Price and (ii) the Warrant Price. Business Day: any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the City of New York are authorized by law to be closed, provided that, in determining the period within which certificates or Warrants are to be issued and delivered pursuant to section 1.3 at a time when shares of Common Stock (or Other Securities) are listed or admitted to trading on any national securities exchange or in the over-the-counter market and in determining the Market Price of any securities listed or admitted to trading on any national securities exchange or in the over-the-counter market, "Business Day" shall mean any day when the principal exchange in which securities are then listed or admitted to trading is open for trading or, if such securities are traded in the over-the-counter market in the United States, such market is open for trading, and provided, further, that any reference to "days" (unless Business Days are specified) shall mean calendar days. Commission: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. Common Stock: the Company's Common Stock, par value $1.00 per share, as constituted on the date hereof, any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. 27 Company: Dixon Ticonderoga Company, a Delaware corporation. Convertible Securities: any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. Current Market Price: on any date specified herein, (a) with respect to Common Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, (i) the average daily Market Price during the period of the most recent 20 consecutive Business Days ending on such date, or (ii) if shares of Common Stock or such Voting Common Stock (or equivalent equity interests), as the case may be, are not then listed or admitted to trading on any national securities exchange and if the closing bid and asked prices thereof are not then quoted or published in the over-the-counter market, the Market Price on such date; and (b) with respect to any other securities, the Market Price on such date. Exchange Act: the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. Fair Value: with respect to any securities or other property, the Fair Value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by an agreement between the Company and the Requisite Holders of Warrants or (b) if the Company and the Requisite Holders of Warrants fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Requisite Holders of Warrants, either of which firms may be an independent investment banking firm regularly retained by the Company or any such holder or (c) if the Company or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by such holders or the Company, as the case may be, determined solely by the firm so retained or (d) if the firms so retained by the Company and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm which is not a regular investment banking firm of the Company or any such holder chosen by the first two such firms. Initial Date: the meaning specified in section 2.2. Initial Exercise Date: the earlier of (a) September 26, 1997 and (b) the date of the first occurrence of an event of the type described in clause (a), (b), (c) or (d) of section 3.1. Market Price: on any date specified herein, (a) with respect to Common Stock or Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, the amount per share equal to (i) the last sale price of shares of such security, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially 28 reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (ii) if no shares of such security are then listed or admitted to trading on any national securities exchange but such security is designated as a national market system security by the NASD, the last trading price of such security on such date, or if such security is not so designated, the average of the reported closing bid and asked prices thereof on such date as shown by the NASD automated quotation system or, if no shares thereof are then quoted in such system, as published by the National Quotation Bureau, Incorporated or any successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by the Company, or (iii) if no shares of such security are then listed or admitted to trading on any national exchange or designated as a national market system security and if no closing bid and asked prices thereof are then so quoted or published in the over-the-counter market, the higher of (x) the book value thereof as determined by agreement between the Company and the Requisite Holders of Warrants, or if the Company and the Requisite Holders of Warrants fail to agree, by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Company, as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made or (y) the fair value thereof determined in good faith by the Board of Directors of the issuer thereof as of a date which is within 15 days of the date as of which the determination is to be made; and (b) with respect to any other securities, the fair value thereof determined in good faith by the Board of Directors of the Company as of a date which is within 15 days of the date as of which the determination is to be made. NASD: the National Association of Securities Dealers. Notes: the meaning specified in the opening paragraphs of this Warrant. Options: rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible securities. Other Securities: any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to section 3 or otherwise. Parent: as to any Acquiring Person, any corporation which (a) controls the Acquiring Person directly or indirectly through one or more intermediaries, (b) is required to include the Acquiring Person in its consolidated financial statements under generally accepted accounting principles and (c) is not itself included in the consolidated financial statements of any other Person (other than its consolidated subsidiaries). 29 Person: an individual, a partnership, an association, a joint venture, a corporation, a limited liability company, a business, a trust, an unincorporated organization or a government or any department, agency or subdivision thereof. Public Offering: any offering of Common Stock to the public pursuant to an effective registration statement under the Securities Act. Purchase Agreement: the meaning specified in the opening paragraphs of this Warrant. Registrable Securities: (a) the Warrants, (b) any shares of Common Stock or other Securities issued or issuable upon exercise of the Warrants and (c) any securities issued or issuable with respect to any common Stock or Other Securities referred to in subdivision (b) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (y) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, or (z) they shall have ceased to be outstanding. Registration Expenses: all expenses incident to the Company's performance of or compliance with section 9, including, without limitation, all registration, filing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of a single counsel and single firm of accountants retained by the holders of the Registrable Securities being registered, premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any. Requisite Holders of Warrants: the holders of at least 66 2/3% of all the Warrants at the time outstanding determined on the basis of the number of shares of Common Stock or Other Securities deliverable upon exercise thereof. Restricted Securities: (a) any Warrants bearing the applicable legend set forth in section 8.1, (b) any shares of Common Stock (or Other Securities) which have been issued upon the exercise of Warrants and which are evidenced by a certificate or certificates bearing the applicable legend set forth in such section, and (c) unless the context otherwise requires, any shares of Common Stock (or Other Securities) which are at the time issuable upon the exercise of Warrants and which, when so issued, will be evidenced by a certificate or certificates bearing the applicable legend set forth in such section. 30 Securities Act: the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such similar Federal statute. Subsidiary: any corporation, association or other business entity at least 50% (by number of votes) of the Voting Common Stock of which is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. Transfer: unless the context otherwise requires, any sale, assignment, pledge or other disposition of any security, or of any interest therein, which could constitute a "sale" as that term is defined in section 2(3) of the Securities Act. Voting Common Stock: with respect to any corporation, association or other business entity, stock of any class or classes (or equivalent interest) , if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar functions) of such corporation, association or business entity, even if the right so to vote has been suspended by the happening of such a contingency. Warrant Price: the meaning specified in section 2.1. Warrants: the meaning specified in the opening paragraphs of this Warrant. 15. REMEDIES. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof any rights as a stockholder of the Company or as imposing any liabilities on such holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. 17. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be delivered by hand or courier service, or mailed by registered or certified mail, return receipt requested, addressed (a) if to any holder of any Warrant or any holder of any Common Stock (or Other Securities), at the registered address of such holder as set forth in the register kept at the principal office of the Company, or (b) if to the Company, to the attention of its Chief Financial Officer, at its principal office, provided that the exercise of any Warrant shall be effected in the manner provided in section 1. 31 18. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. The agreements of the Company contained in this Warrant, other than those applicable solely to the Warrants and the holders thereof, shall inure to the benefit of and be enforceable by any holder or holders at the time of any Common Stock (or Other Securities) issued upon the exercise of Warrants, whether so expressed or not. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York. The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. 19. EXPIRATION. The right to exercise this Warrant shall expire at 3 P.M., New York City time, on September 26, 2003. DIXON TICONDEROGA COMPANY By: __________________________ Name: Title: FORM OF SUBSCRIPTION (To be executed only upon exercise of Warrant) To _________________ The undersigned registered holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, _____________ shares of Common Stock of DIXON TICONDEROGA COMPANY, a Delaware corporation, and herewith makes payment of $_______ therefor [by application pursuant to section 1.5 of such Warrant of $_______ aggregate principal amount of Notes (as defined in such Warrant) plus $________ accrued interest thereon], and requests that the certificates for such shares be issued in the name of, and delivered to __________________ whose address is __________________. [The undersigned hereby instructs you to credit the principal amount of each Note so applied against the installments of principal remaining unpaid on such Note in the ______________ order of their maturity dates.] Dated: ______________ _____________________ (Signature must conform in all respects to name of holder as specified on the face of this Warrant) [insert address] FORM OF ASSIGNMENT (To be executed only upon transfer of Warrant) For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto ____________________ the right represented by such Warrant to purchase shares ____________ of Common Stock of DIXON TICONDEROGA COMPANY, a Delaware corporation, to which such Warrant relates, and appoints ____________________ Attorney to make such transfer on the books of ___________________ maintained for such purpose, with full power of substitution in the premises. Dated: _____________ _________________________ (Signature must conform in all respects to name of holder as specified on the face of this Warrant) [insert address] Signed in the presence of: _________________________ EX-10 6 LICENSE AND TECHNOLOGICAL AGR 1 AMENDED LICENSE AND TECHNOLOGICAL ASSISTANCE AGREEMENT INTRODUCTION THIS AMENDED AGREEMENT ("Agreement") is made this 22nd day of November, 1996, between Carborundum Corporation, a corporation organized under the laws of the State of Delaware with principal offices at Crows Mill Road, Keasbey, New Jersey 08832, (hereinafter referred to as "Licensor"), and New Castle Refractories Company, a division of Dixon Ticonderoga Company, a corporation organized under the laws of the State of Delaware, with principal offices at 915 Industrial Street, New Castle, Pennsylvania 16102 (hereinafter referred to as "Licensee"). WHEREAS, Licensor, pursuant to a Federal Trade Commission (FTC) Consent Order executed by the FTC and by Saint-Gobain/Norton Industrial Ceramics Corporation on February 26, 1996, and entered as final on June 12, 1996, arising out of "In the Matter of Saint-Gobain/Norton Industrial Ceramics Corporation," is interested in enabling Licensee to enter the Silicon Carbide Refractory Brick business by providing Licensee with a patent and technology license and with a technology transfer; WHEREAS, Licensee is interested in entering the Silicon Carbide Refractory Brick business through the acquisition of a patent and technology license from Licensor; WHEREAS, Licensor is further willing to provide Licensee with equipment purchase and product sourcing options pursuant to companion agreements entitled "Equipment Option and Purchase Agreement" and "Product Purchase Agreement" respectively; WHEREAS, Licensor and Licensee entered into an agreement dated August 23, 1996 ("Original Agreement"), providing Licensee a license from Licensor for Silicon Carbide Refractory Brick Technology; and WHEREAS, Licensor and Licensee wish to amend the Original Agreement; NOW, THEREFORE, in consideration of the terms and conditions expressed hereinbelow, Licensor and Licensee agree as follows: 1. DEFINITIONS As used herein: 1.1 "Effective Date Of This Agreement" shall mean the date on which this Agreement has been finally approved by the FTC. 2 1.2 "Silicon Carbide Refractory Bricks" shall mean all refractory products composed of bonded silicon carbide grains which are formed by hydraulic, mechanical or vibratory pressing, and are marketed for use in the manufacture of primary metals, including aluminum reduction cells, steel blast furnaces, and copper shaft furnaces. 1.3 "Silicon Carbide Refractory Brick Technology" shall mean: all patents, trade secrets, technology and know-how of Licensor for producing any Silicon Carbide Refractory Brick product sold by Carborundum on or before the date hereof, all such information being sufficiently detailed for the commercial production and sale of such products, including, but not limited to, all technical information, data, specifications, drawings, design and equipment specifications, manuals, engineering reports, manufacturing designs and reports, operation manuals, and formulations, laboratory research, and quality control data. 1.4 "Licensed Patents" shall mean all letters patent identified in Appendix A. 1.5 "Licensed Products" shall mean products manufactured with the Silicon Carbide Refractory Brick Technology. 1.6 "Sole License" shall mean an exclusive license with the exception of: (a) Licensor, Licensor's affiliate, and other non North American third parties; and (b) any third party to whom the Silicon Carbide Refractory Brick Technology had been licensed or otherwise transferred prior to the date hereof. 2. PATENT AND TECHNOLOGY LICENSE 2.1 Subject to and conditioned upon final approval by the FTC, Licensor hereby grants to Licensee a fully paid-up, Sole License, without the right to sublicense, under the Licensed Patent and under the Silicon Carbide Refractory Brick Technology to manufacture, use and sell Licensed Products. 2.2 Licensor shall provide Licensee prior to the Effective Date Of This Agreement, a list which represents Licensor's best understanding of the third parties to whom the Silicon Carbide Brick Technology had been licensed or otherwise transferred prior to the date hereof. 3 3. TECHNICAL INFORMATION AND KNOW-HOW AND TECHNICAL SERVICES 3.1 During the period of 12 months after the Effective Date Of This Agreement, on reasonable notice and request by Licensee, Licensor shall provide to the Licensee information, technical assistance, and advice sufficient to effect the transfer to the Licensee of the Silicon Carbide Refractory Brick Technology and to enable the Licensee to manufacture Silicon Carbide Refractory Bricks. 3.2 During the period of 12 months after the Effective Date Of This Agreement, on reasonable notice and request by Licensee, Licensor shall also provide to the Licensee consultation and training with knowledgeable employees of Licensor, including at least one qualified engineer, at the Licensee's facility for a period of time, not to exceed three (3) months, sufficient to satisfy Licensee's management that its personnel are adequately trained in the manufacture of Silicon Carbide Refractory Bricks. 3.3 Licensee shall reimburse Licensor for all of its direct out-of-pocket expenses, including direct travel expenses, incurred in providing the assistance required by this Article 3. Licensee shall also pay Licensor a per diem (including time spent in travel to Licensee's site) equal to Licensor's actual expenses (including but not limited to daily wages or salary plus benefits) not to exceed five hundred dollars per day ($500.00/day) per Licensor employee for each day greater than 30 days of on-site assistance incurred in providing the assistance required by this Article 3. All such payments shall be made in United States dollars or in such other currency as Licensor may approve in writing. 3.4 Licensor shall provide the Licensee with all promotional, advertising, and marketing materials regarding Silicon Carbide Refractory Bricks prepared or made available by Licensor at any time during the period commencing twelve (12) months prior to the date hereof, a list of all customers of Licensor's Silicon Carbide Refractory Bricks during the period commencing twenty four (24) months prior to the date hereof, and a list of Licensor's suppliers of silicon carbide, other raw materials, and production components used to produce Licensor's Silicon Carbide Refractory Bricks. 3.5 Nothing in this Agreement shall obligate Licensor to transfer to Licensee any technology or know-how (or rights thereto) that was not in Licensor's possession or control during the entire period between June 12, 1996 and the Effective Date of This Agreement. 4 3.6 If, prior to six (6) months following the Effective Date of This Agreement, Licensor makes a SiC Refractory Brick product development and introduces an improved SiC Refractory Brick product which is different from a Licensed Product in the primary metals marketplace (i.e., the aluminum reduction cell, the steel blast furnace, and the copper shaft furnace marketplaces), Licensor shall transfer such product development to Licensee according to paragraphs 3.1 and 3.2 hereinabove. 4. CONFIDENTIAL INFORMATION 4.1 When either party ("Discloser") discloses to the other ("Disclosee") in connection with this Agreement any proprietary information with respect to Silicon Carbide Refractory Bricks (said proprietary information along with Silicon Carbide Refractory Brick Technology, hereinafter referred to as "Technical Information"), it is agreed that such disclosure of Technical Information is conditioned upon the following: 4.2 Disclosee shall maintain in confidence and refrain from using for or on behalf of anyone other than Discloser and/or Disclosee (and/or Licensee's assignee if an assignment is made under paragraph 6.2 below) all Technical Information received from Discloser, whether such Technical Information is embodied in documentation or otherwise; provided that if Licensor is the Disclosee and Licensor receives proprietary information of Licensee in the course of providing technical assistance under this Agreement, then Licensor shall also refrain from using such proprietary information on its own behalf; and provided further that the obligations of this Article 4 shall not apply to any information which: 4.2.1 is, at the time Disclosee receives it or shall thereafter become, part of the public domain except where this is due to Disclosee's own acts or omissions, or the acts or omissions of any of Disclosee's employees, or any third party acting on Disclosee's behalf; 4.2.2 has been furnished or made known to Disclosee by any third party as a matter of right and without restriction on disclosure, provided that Disclosee does not know or have reason to know that such information was acquired by such third party directly or indirectly from Discloser under binder of secrecy; or 4.2.3 was legally in Disclosee's possession at the time the parties entered into this Agreement as evidenced by written records, and was not acquired directly or indirectly from Discloser or a predecessor in interest of Discloser. 5 4.3 Disclosee shall limit the disclosure of Discloser's Technical Information within Disclosee's organization to only those employees who are required to use such Technical Information in connection with the purposes for which such Technical Information was disclosed to Disclosee and shall maintain current a continuing list of the names of all of Disclosee's employees to whom such disclosure has been made, which list shall be made available to Discloser upon request. 5. CONSIDERATION 5.1 The parties hereto agree that in consideration of the rights and licenses granted and conveyed in this Agreement, Licensee shall pay to Licensor a fixed sum in the amount of Four Hundred and Fifty Thousand Dollars ($450,000.00). This sum shall be paid by Licensor to Licensee in the following manner: 5.1.1 Licensee shall pay to Licensor a sum in the amount of One Hundred Thousand Dollars ($100,000.00) within thirty (30) days of the Effective Date of This Agreement. 5.1.2 Licensee shall pay to Licensor a sum in the amount of One Hundred and Fifty Thousand Dollars ($150,000.00) within thirty (30) days of the earlier of: a. the second anniversary of the Effective Date of This Agreement; or b. Licensee's cumulative invoicing of One Million Dollars ($1,000,000) of gross sales of Licensed Product. 5.1.3 Licensee shall pay to Licensor a sum in the amount of Two Hundred Thousand Dollars ($200,000.00) within thirty (30) days of the earlier of: a. the fifth anniversary of the Effective Date of This Agreement, or b. Licensee's cumulative invoicing of Four Million Five Hundred Thousand Dollars ($4,500,000) of gross sales of Licensed Product. 5.2 All payments to Licensor under this Agreement shall be made in United States dollars at the office of Licensor set forth at the beginning of this Agreement or at such other place as Licensor may direct. 6 5.3 If Licensee fails to make any payment required to be made by it under this Agreement and Licensor initiates a mediation under paragraph 7.3 and/or a judicial proceeding to collect such payment or payments, then in addition to any payments that are due, Licensor shall be entitled to recover from Licensee reasonable attorneys' fees incurred by Licensor in connection with such mediation and/or judicial proceedings along with interest at the Prime Rate plus two (2) percent running from the time such payment or payments were due under this Agreement. 6. TERM OF AGREEMENT 6.1 The license granted in Article 2 above shall be perpetual. 6.2 Licensee may assign its rights under this Agreement, including but not limited to the Sole License that is granted hereunder, provided that upon such assignment, the Sole License granted hereby to Licensee shall immediately be fully transferred to Licensee's assignee and shall terminate as to Licensee, and Licensee shall cease to use the Silicon Carbide Refractory Brick Technology furnished hereunder and the inventions embodied in the Licensed Patents, and shall turn over to Licensee's assignee all documentation and other physical forms embodying Technical Information (as defined in paragraph 4.1 above) together with all copies that may have been prepared by Licensee while such Technical Information was in Licensee's possession; and provided further that Licensee shall have a continuing obligation to comply with the confidentiality provisions of Article 4 above; and provided further that Licensee's assignee shall agree in writing, delivered to Licensor, that assignee shall be fully bound by all obligations of Licensee under this Agreement, including but not limited to the obligations of confidentiality set forth in Article 4 hereof. In the event that Licensee makes an assignment under this paragraph 6.2, Licensee shall give prompt notice of such assignment and the identity of the assignee to Licensor. The provisions of this paragraph 6.2 shall not oblige Licensee to cease manufacture of any product using technology or know-how which has been developed exclusively by it, or is part of the public domain, or lawfully furnished by a third party, or was in its possession prior to the Effective Date Of This Agreement. 6.3 The provisions of this Agreement, including but not limited to the payment obligations set forth in Article 5, shall continue to be binding upon Licensee notwithstanding an assignment under paragraph 6.2 above. 6.4 This Agreement shall be terminated, and no party shall be obligated hereunder, if this Agreement is not finally approved by the FTC on or before August 26, 1997. 7 7. GENERAL 7.1 During the term of this Agreement, Licensee shall diligently employ its best efforts in the manufacture of Silicon Carbide Refractory Bricks. 7.2 Any notice or other communication to either party to this Agreement required or permitted hereunder shall be in writing and shall be sent by registered airmail, return receipt requested, postage prepaid, addressed to the address of such party set forth at the beginning of this Agreement or to such changed address as such party shall be deemed to have been served when delivered or, if delivery is not accepted by reason of the fault of the addressee, when tendered. 7.3 All disputes arising in connection with this Agreement shall be finally settled by mediation held and conducted in Worcester, Massachusetts, U.S.A. in accordance with the rules of the American Arbitration Association. Judgment to enforce the agreement reached may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. In interpreting the provisions of this Agreement, the mediators shall apply the law of Massachusetts. 7.4 This Agreement may be executed in several counterparts and each such counterpart shall be deemed an original hereof. 7.5 Licensor warrants that prior to a final decision by the FTC, Licensor will not continue any further discussions with any other party regarding licensing Silicon Carbide Brick Technology. IN WITNESS WHEREOF, Licensor and Licensee have caused this Agreement to be duly executed on the date first written above. LICENSOR COMPANY LICENSEE COMPANY BY: /s/ Robert C. Ayotte BY /s/ Gino N. Pala ------------------------- ------------------------- Robert C. Ayotte Gino N. Pala President and CEO President and CEO Carborundum Corporation Dixon Ticonderoga Company Date: 11/22/96 Date: 11/21/96 8 APPENDIX A U.S. Patent Number 4,578,363, "Silicon Carbide Refractories Having Modified Silicon Nitride Bond" dated March 25, 1986. EX-10 7 EQUIPMENT OPTION AND PURCHASE AGR 1 AMENDED EQUIPMENT OPTION AND PURCHASE AGREEMENT THIS AMENDED AGREEMENT is made this 22 day of November, 1996 between Carborundum Corporation, a Delaware corporation with principal offices at Crows Mill Road, Keasbey, New Jersey 08832 ("Licensor") and New Castle Refractories Company, a division of Dixon Ticonderoga Company, a Delaware corporation with principal offices at 915 Industrial Street, New Castle, Pennsylvania 16102 ("Licensee"). FACTS Licensor and Licensee previously entered into an Equipment Option and Purchase Agreement, dated August 23, 1996, which they now wish to amend and supersede as set forth below. Pursuant to a License and Technological Assistance Agreement (the "License Agreement") dated November 22, 1996, Licensor has granted a license to Licensee with respect to silicon carbide refractory brick technology. Licensee wishes to have the option to purchase certain equipment from Licensor used in the manufacture of silicon carbide refractory bricks, and Licensor is willing to grant an option to purchase such equipment. AGREEMENT In consideration of the License Agreement and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows: 1. Licensor grants to Licensee an option (the "Option") to purchase any one or all of the items of equipment listed on EXHIBIT A (the "Equipment") for the purchase price set forth on EXHIBIT A (the "Purchase Price"). The Option is exercisable at any time or times on or after the Effective Date of this Agreement (defined below) and on or before 5:00 p.m. Eastern Time on the fifth anniversary of the Effective Date. The Option may be exercised at separate times with respect to each item of Equipment. 2. The Option may be exercised by written notice, which must provide a date (not less than ninety days nor more than one hundred eighty days from the date of delivery of the notice to Licensor) for removal of the Equipment so purchased from Licensor's facilities. 2 3. Licensor represents and warrants that the Equipment is operable and in good condition, ordinary wear and tear excepted. Licensor covenants to maintain the equipment in good condition in accordance with its customary maintenance practices. However, Licensor will not be required to continue to maintain the equipment during the term of this Agreement if Licensor, in its sole discretion, determines that it has become economically unfeasible to do so. Licensee will have the right to inspect the Equipment prior to exercising the Option. Licensor will not be responsible for maintaining any item of Equipment once the Option has been exercised with respect to that item. The Equipment will be sold "as is, where is" to Licensee at Licensee's risk. THE LICENSOR MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE EQUIPMENT. 4. If the Option is exercised, the item or items of Equipment so purchased will be made available to Licensee at Licensor's place of business in Keasbey, New Jersey, and delivery will be F.O.B. Licensor's place of business. Licensee will be solely responsible for disassembling, moving and reassembling such Equipment. Licensee will provide Licensor with a certificate of insurance with respect to all personnel utilized or employed for the purpose of disassembling and moving such Equipment as follows: (a) Workmen's Compensation and employer's Liability Insurance, including Occupational Disease, covering all personnel (aa) Employer's Liability (Coverage B on Workmen's Compensation Policy) $100,000 minimum for each accident or disease. (b) Comprehensive General Liability Insurance (endorsed to include Contractual Liability coverage) (bb) Minimum Limits of Liability: Bodily Injury Liability: $250,000 each occurrence 500,000 aggregate Property Damage Liability: $100,000 each occurrence 3 (c) Automobile Liability Insurance (cc) Minimum Limits of Liability: Bodily Injury: $100,000 each person 300,000 each person Property Damage: $200,000 each accident Licensee will keep such insurance coverage in effect at all times during the disassembling, moving and reassembling of such Equipment. 5. Licensee will pay the Purchase Price for the Equipment so purchased within thirty days of the date such Equipment is shipped to Licensee or within two hundred ten days after the giving of written notice as provided in Section 2, whichever comes first. Payment will be made in United States dollars at the office of Licensor set forth at the beginning of this Agreement or at such other place as Licensor may direct. Licensor will retain a purchase money security interest in the Equipment so purchased until Licensee has paid for such Equipment in accordance with the terms of this Agreement, and Licensee agrees to execute such further documents, including UCC-1 Financing Statements, as are necessary to perfect Licensor's security interest in such Equipment. 6. Licensee may not assign this Agreement or all or any part of its rights under this Agreement to any other person, firm or corporation without the prior written consent of Licensor, which will not be unreasonably withheld by Licensor with respect to an assignment by Licensee to any wholly owned subsidiary of Licensee. 7. Any notice or other communication to either party to this Agreement required or permitted under this Agreement will be in writing and will be sent by registered air mail, return receipt requested, postage prepaid, addressed to the address of such party set forth at the beginning of this Agreement or to such changed address as such party shall have communicated to the other. Any such notice or communication will be deemed to have been served when delivered or, if delivery is not accepted by reason of the fault of the addressee, when tendered. 8. All disputes arising in connection with this Agreement will be finally settled by mediation held and conducted in Worcester, Massachusetts in accordance with the rules of the American Arbitration Association. Judgment to enforce the agreement reached may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. In interpreting the provisions of this agreement, the mediators will apply the law of the Commonwealth of Massachusetts. 4 9 This Agreement may be executed in several counterparts an each such counterpart shall be deemed an original of this agreement. 10. This agreement will be effective (the "Effective Date") when the License Agreement becomes effective in accordance with its terms. If the License Agreement does not become effective in accordance with its terms, then this Agreement will be null and void. IN WITNESS WHEREOF, Licensor and Licensee have caused this agreement to be duly executed on the date first above written. LICENSOR: Carborundum Corporation By: /s/ Robert C. Ayotte ---------------------------------- LICENSEE: New Castle Refractories Company, A Division of Dixon Ticonderoga By: /s/ Gino N. Pala ---------------------------------- 5 EXHIBIT A (Pages 1 - 4 attached) Item Purchase Price ---- -------------- Crossley Press, 1000 Ton $25,000 Bickley Bell Kiln, 360 Cubic Foot $75,000 Maxibrator, Carborundum Custom Design $25,000 6 EXHIBIT A (Page 1 of 4) The Crossley Machine Company Specifications 1000-Ton Press - Double Compession HYDRAULIC PRESS Press Specifications: Press Tonnage: 1,000 tons infinitely adjustable to 100-ton minimum Power Requirements: 150 Horsepower and 10 Horsepower Press Weight: 65,000 lbs. - 70,000 lbs. plus hydraulic unit. Top Ram - Approach and return: 600 inches per minute Top Ram - Max. pressing speed: 30 inches per minute-infinitely adjustable Bottom Ram-Max. pressing speed 30 inches per minute-infinitely adjustable Maximum Hydraulic Pressure to reach 1,000 tons - 3,767 pounds per sq in. Hydraulic Power Unit: With safety and "clean oil" controls as follows: a. "Oversize" air breather. b. Temperature switch pre-set to 145 degrees F. Will prevent press from operating if temperature exceeds normal operating temperature (110-120 degrees F). c. High pressure relief valve pre-set to prevent hydraulic pressure over normal maximum pressure. d. Ten micron "full" flow filters and three micron filter for continuous clean oil. Filters will have indicators for internal element change. e. Water cooler with thermostatic control for control of oil temperature. f. Provisions to add water heater if required. g. Low level oil and temperature indicator. 7 EXHIBIT A (Page 2 of 4) Hydraulic Press Page 2 Mechanical "Wear" Protection: a. Case hardened alloy steel columns. b. "Polypak" piston seals and wipers. c. Flexible boots for lower ram - column area, die rods and ram pistons. d. Split bronze bushings and wiper seals for rams - column area. Safety Features: a. Two hand anti-tie down cycle start buttons. b. Mechanical latch type safety bar for ram. c. Photohead or equivalent electrical interlock (at operator position, front of press). 8 EXHIBIT A (Page 3 of 4) BICKLEY KILN - - Bickley Model 2500 Iso - Jet Carbell Kiln - - The kiln is equipped with two (2) kiln cars with nominal setting dimensions of 72" wide X 144" long X 60" high each. Total kiln volume is 360 cubic feet. - - Maximum firing temperature of PCE Cone 30 is reached with eight (8) dual fuel Iso - Jet burners (type 3.5 BPN-1000) having a total BTU input rating of 6.0 million BTU per hour. - - Fuel is natural gas and propane vapor alternate, with natural gas rated at 1000 BTU per cubic foot. - - Electrical hookup is 440 volt, 3-phase, 60-cycle for power and 110 volt, 1-phase, 60-cycle for control. 9 EXHIBIT A (Page 4 of 4) MAXIBRATOR Maxibratr is an electromechanical vibratory compacting machine used for making relatively complicated shapes. It is also a machine of choice when a small quantity of a shape is to be made since there is no machine/mold setup involved. The basic machine consists of two (2) invicta type electromechanical vibrators fixed to a lower platen. The electromechanical vibrators deliver the compaction energy to the mold through the lower platen. The vibrator/platen assembly is located from the main machime base by Metalastic vibration isolators. The upper platen with two (2) 5" bore X 24" stroke air cylinders provide the clamping force needed to hold the mold against the lower platen. A noise enclosure surrounds the machine. The enclosure has a walk in access for maintenance and air cylinder powered doors to pass for mold access. EX-10 8 PRODUCT PURCHASE AGREEMENT 1 PRODUCT PURCHASE AGREEMENT -------------------------- THIS AGREEMENT is made this 23rd day of August, 1996 between Carborundum Corporation, a Delaware corporation with principal offices at Crows Mill Road, Keasbey, New Jersey 08832 ("Licensor") and New Castle Refractories Company, a division of Dixon Ticonderoga Company, a Delaware corporation with principal offices at 915 Industrial Street, New Castle, Pennsylvania 16102 ("Licensee"). FACTS Pursuant to a License and Technological Assistance Agreement (the "License Agreement") dated August 23, 1996, Licensor has granted a license to Licensee with respect to silicon carbide refractory brick technology. Licensee anticipates that from time to time Licensee will have to purchase silicon carbide refractory bricks ("Bricks") from Licensor in order to meet Licensee's obligations under purchase orders from its own customers. Licensor and Licensee have agreed to establish the parameters under which Licensee may place orders with Licensor for Bricks. AGREEMENT In consideration of the License Agreement and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows: 1. Licensor grants to Licensee the right to purchase from Licensor the products listed on Exhibit A attached to this Agreement (the "Products"). Licensor understands that the Products will be purchased for resale and for comparative testing in the metals market, and consents to such use. 2. Attached to this Agreement as Exhibit B is a list of prices for the most commonly ordered Brick shapes for each Product. Subject to the other terms of this Agreement, Licensor agrees to sell the Products to Licensee at such prices. The prices set forth in Exhibit B may be increased by Licensor one year from the Effective Date of this Agreement (defined below) by the lesser of (a) the percentage increase of any general price increase announced by Licensor or (b) five percent, such increase to take effect for all Products delivered after such increase. Any price increases will be noted on quotations made at the time of order placement. 2 3. If Licensee places an order for shapes that are not listed on Exhibit B, then Licensor will determine the prices for such Bricks on a comparative basis with similar Products that are listed on Exhibit B. Licensor agrees to use its best efforts to assure consistent pricing with the listed Products, with consideration being given to brick configuration, brick size, quantity, required production routing, product specified and any special requirements such as quality assurance testing, non-standard packaging or non-standard lead times. Such prices will be determined in good faith by Licensor and will be based upon brick dimensions and/or brick drawings, related bills of materials and all other required customer specifications provided by Licensee to Licensor. 4. In order for Licensee to place orders under this Agreement with the benefit of the pricing schedule attached as Exhibit B, Products must be ordered within the two year period commencing on the Effective Date of this Agreement for shipment upon completion of production. All Products will be shipped F.O.B. Keasbey, New Jersey pursuant to Licensor's standard terms and conditions of sale, attached to this Agreement as Exhibit C, and payment will be net thirty (30) days. All payments will be made in United States dollars at the office of Licensor set forth at the beginning of this Agreement or at such other place as Licensor may direct. 5. Licensee acknowledges that the prices set forth on Exhibit B assume standard lead times in existence at the time of the placement of any particular order by Licensee. Any orders received by Licensor from Licensee will be scheduled for production on the same basis as standard customer orders, within all of the limits of available capacity to which the Licensor's operations are then subject. Subject to the foregoing, Licensor agrees that it will deliver up to 400 tons of standard Products to Licensee pursuant to orders placed pursuant to this Agreement within any rolling three-month period during the term of this Agreement, not to exceed 1,000 tons in any rolling twelve-month period. 6. Licensee may not assign this agreement or all or any part of its rights under this agreement to any other person, firm or corporation without the prior written consent of Licensor, which will not be unreasonably withheld by Licensor with respect to an assignment by Licensee to any wholly owned subsidiary of Licensee. 7. Any notice or other communication to either part to this agreement required or permitted under this agreement will be in writing and will be sent by registered air mail, return receipt requested, postage prepaid, addressed to the address of such party set forth at the beginning of this agreement or to such changed address as such party shall have communicated to the other. Any such notice or communication will be deemed to have been served when delivered or, if delivery is not accepted by reason of the fault of the addressee when tendered. 3 8. All disputes arising in connection with this agreement will be finally settled by mediation held and conducted in Worcester, Massachusetts in accordance with the rules of the American Arbitration Association. Judgment to enforce the agreement reached may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and the order of enforcement, as the case may be. In interpreting the provisions of this agreement, the mediators will apply the law of the Commonwealth of Massachusetts. 9. This agreement may be executed in several counterparts and each such counterpart shall be deemed an original of this agreement. 10. This Agreement will become effective (the "Effective Date") when the License Agreement becomes effective in accordance with its terms. If the License Agreement does not become effective in accordance with its terms, then this Agreement will be null and void. IN WITNESS WHEREOF, Licensor and Licensee have caused this agreement to be duly executed on the date first above written. LICENSOR: Carborundum Corporation By: /s/ Robert C. Ayotte ------------------------------- LICENSEE: New Castle Refractories Company, A Division of Dixon Ticonderoga By: /s/ Gino Pala ------------------------------- 4 EXHIBIT A CARBOFRAX REFRAX 20 REFRAX 20 SBF SIALFRAX 5 EXHIBIT B Delivered to Company only. 6 EXHIBIT C THE CARBORUNDUM COMPANY Terms and Conditions of Sale This Sale is Subject to the Following Terms and Conditions as Well as Those Appearance on the Attached. 1. AGREEMENT OF SALE; ACCEPTANCE: Any acceptance contained herein is expressly made conditional on Buyer's assent to any terms contained herein that are additional to or different from those proposed by Buyer in its purchase order and, hence, any terms and provisions of Buyer's purchase order which are inconsistent with the terms and conditions hereof shall not be binding on the Seller. Unless Buyer shall notify Seller in writing to the contrary as soon as practicable after receipt hereof, acceptance of the terms and conditions hereof by Buyer shall be deemed made and; in the absence of such notification, the sale and shipment by the Seller of the goods covered hereby shall be conclusively deemed to be subject to the terms and conditions hereof. 2. ENTIRE CONTRACT: This contract constitutes the final and entire agreement between Seller and Buyer and any prior or contemporaneous understandings or agreements, oral or written, are merged herein. 3. PRICES: The price to be paid by Buyer shall be the price in effect at the date of actual delivery of the goods unless otherwise specified in writing by Seller. 4. TAXES: The price of the goods does not include sales, use, excise, ad valorem, property or other taxes now or hereafter imposed, directly or indirectly, by any governmental authority or agency with respect to the manufacture, production, sale, delivery, consumption or use of the goods covered by this contract. Buyer shall pay such taxes directly or reimburse Seller for any such taxes which it may be required to pay. 5. PAYMENT: The specific terms of payment are as specified in writing by Seller. If the Buyer shall fail to make any payments in accordance with the terms and provisions hereof, the Seller, in addition to its other rights and remedies, but not in limitation thereof, may, at its option, defer its shipments or deliveries hereunder, or under any other contract with the Buyer, except upon receipt of satisfactory security or of cash before shipment. 6. SHIPMENT; RISK OF LOSS; TITLE: The goods shall be shipped FOB Seller's shipping points. Risks of loss pass to Buyer upon delivery to the carrier. Title shall pass to Buyer on delivery to the carrier. 7. DELIVERIES: The date of delivery provided herein is an approximation based on Seller's best judgment and prompt receipt from the Buyer of all necessary data regarding the goods. Unless otherwise expressly stated, Seller shall have the right to deliver all of the goods at one time or in portions from time to time within the time of delivery herein provided. The delivery of non-conforming goods, or a default of any nature, in relation to one or more installments of this contract shall not substantially impair the value of this contract as a whole and shall not constitute a total breach of the contract as a whole. 7 8. DELAYS IN DELIVERIES: Seller shall be excused for delay in delivery, may suspend performance and shall under no circumstances be responsible for failure to fill any order or orders when due to: acts of God or of the public enemy; fires; floods; riots; strikes; freight embargoes or transportation delays; shortage of labor; inability to secure fuel, material supplies, or power at current prices or on account of shortages thereof; any existing or future laws or acts of the Federal or of any State Government (including specifically but not exclusively any orders, rules or regulations issued by any official or agency of any such government) affecting the conduct of Seller's business; any clause beyond Seller's reasonable control. 9. OVERSHIPMENT: On orders for special shapes (non stocked items), Seller may ship quantities produced to cover possible losses in manufacturing and invoice the same up to an amount representing 10% of the initial order quantity. 10. WARRANTY: Seller warrants that the goods manufactured by the Seller when shipped are free from defects in materials and workmanship; provided, however, Seller shall have no obligation or liability under this warranty unless it shall have received prompt written notice specifying such defect no later than one (1) year from the date of shipment. In the event of defects developing within that period under normal and proper use, Buyer agrees that its sole and exclusive remedy shall require only that the Seller, at its option, repair, modify or replace the non-conforming goods FOB Seller's plant or accept the return of the non-conforming goods and refund the purchase price or part thereof, giving effect to the use or value received by Buyer. No goods shall be returned to Seller without Seller's prior written consent. This warranty is in lieu of all other warranties, express, implied or statutory, written or oral, and DOES NOT INCLUDE ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. 11. LAWS, CODES, REGULATION, SAFETY DEVICES: Compliance with laws, codes and regulations relating to the goods and their use is the sole responsibility of Buyer, and Seller makes no warranty or representation with respect thereto. Buyer assumes the responsibility for providing and installing any and all devices for the protection of safety and health and shall indemnify and hold harmless Seller against any expense, loss or damage which Seller may incur or sustain as a result of Buyer's failure to so do. 12. PATENTS: Seller warrants that the use or sale of the goods delivered hereunder will not infringe the claims of any United States patent covering the goods, but does not warrant infringement by reason of the use thereof in combination with other material or equipment in the operation of any process. Seller shall, at its own expense, assume the defense of any claim, suit or other proceedings brought against Buyer upon a claim that the goods furnished under this contract constitutes an infringement of any patent of the United States. Buyer agrees to cooperate in the defense of any such proceedings and to provide information, assistance and authority necessary therefor. Should the goods in such suit be held to constitute infringement and the use of the goods enjoined, the Seller shall, at its own expense and at its option, procure for the Buyer the right to continue using such goods or replace them with substantially equivalent goods or modify them so they become non- infringing. Buyer shall defend, hold harmless and indemnify Seller against all judgments, decrees, costs and expenses arising out of any action against Seller or its suppliers based on a claim that the manufacture or sale of goods hereunder constitutes infringement of any United States letters patent, if such goods were manufactured pursuant to Buyer's proprietary designs, specifications and/or formulae and were not normally offered for sale by seller; provided, however, Seller shall give prompt written notice of the claim or action and Seller shall give Buyer authority, information and assistance at Buyer's expense. 8 13. LIABILITY: In no event shall Seller's obligation and liability under this contract extend to direct, indirect, punitive, special, incidental or consequential damages or losses Buyer may suffer or incur in connection therewith, such as but not limited to loss of revenue or profits, damages or losses as a result of Buyer's inability to operate, or shut down of, its plant or operations, loss of use of the goods or associated goods or cost of substitute goods, facilities or services, inability to fulfill contracts with third parties, injury to good will, claims of customers and the like, nor shall it extend to damages or losses Buyer may suffer or incur as a result of claims, suits or other proceedings made or instituted against Buyer by third parties, whether public or private in nature. 14. BUYER'S DEFAULT; TERMINATION: Buyer shall be liable to seller for all damages or losses, including loss of reasonable profits, and for costs and expenses, including attorney's fees, sustained by Seller and arising from Buyer's default under, or breach of, any of the terms and conditions of this contract. In the event of any such default or breach, Seller may, without any obligation or liability to Buyer, terminate this contract forthwith by written notice to Buyer and such action by seller shall not be deemed a waiver of any right or remedy with respect to such default or breach. 15. ASSIGNMENT: No right or interest in this contract shall be assigned by Buyer without prior written agreement by the Seller. No delegation of any obligation owed or the performance of any obligation by the Buyer shall be made without prior written agreement by the Seller. 16. LAW GOVERNING: The interpretation and performance of this contract shall be in accordance with and shall be controller by the laws of the State of New York. Buyer consents to the jurisdiction of he courts of the State of New York with venue in Niagra County. 17. MODIFICATIONS; WAIVER: No waiver, alteration or modification of any of the provisions hereof shall be binding on the Seller unless made in writing and agreed to by a duly authorized official of the Seller. No waiver by the Seller of any one or more defaults by the Buyer in the performance of any provisions of this contract shall operate or be construed as a waiver of any future default or defaults, whether or a like or of a different character. EX-27 9 1996 10-K FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows, and is qualified in its entirety by reference to such financial statements. YEAR SEP-30-1996 SEP-30-1996 2,597,032 0 24,795,300 1,352,411 31,460,934 60,545,651 33,166,940 17,730,505 77,848,140 32,169,102 0 3,537,211 0 0 12,454,345 77,848,140 106,695,874 106,695,874 70,343,837 70,343,837 27,955,760 2,039,000 3,423,650 2,933,627 845,044 1,168,061 0 (282,303) 0 885,758 .27 .27
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